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Thursday, December 10, 2009

Rough days for venture-funded cleantech startups

Tonight’s event hosted by the SJSU-affiliated Environmental Business Cluster (EBC) was officially about Creative Financing for cleantech startups. And certainly the speakers talked about strategic investing (CVC) and government grants in addition to normal angel and VC funds.

One of the panelists was Brian Sager, a VP and co-founder of Nanosolar, which had A-list Silicon Valley tech zillionaires as its angels, then did a Series A and B with VCs, Series C with private equity and Series D with strategic investors impressed by a $4b backlog. By the time it was done, it raised almost a half-billion dollars.

Still, this is not a great time for cleantech investors. Moderator Eric Wesoff of Greentech Media noted an excessive number of VC-funded entires in a wide range of PV technologies, and Wesoff and several panelists alluded to the shakeout now underway.

The final comment of the evening, by NREL CIGS researcher turned VC Andrew Willamson, noted that valuations this year for most series B,C,D were off 40-60% (or even 80%). Dr. Williamson concluded: “I’m not doing anything this year that I can’t get for half off.”

Still, there were some thing missing from the session — great speakers but a little more coherence was needed. (Admittedly, the audience was a mix of people who attend two of these events every week versus those who were at their first or second.)

Wesoff tried but skimmed through his slides to avoid boring industry veterans. One thing that would have been interesting was the observations of GTM coworker Rob Day last month on cleantech VC “conventional wisdom”:
  1. Cleantech only happens in Silicon Valley and MIT. If you look at the dollars flowing into cleantech from venture capitalists, and read the sunday NYT, that's the natural conclusion you would draw.…
  2. Cleantech is really only solar, "smart grid", biofuels and electric vehicles.
  3. Cleantech is really only about capital intensive business models.
  4. Cleantech startups are only for whiz-bang PhD researchers who have earth-shattering innovations. Business models like energy efficiency services, and other implementation efforts, need not apply.
  5. The only good cleantech startups are those backed by VCs. The fact that only 1% of startups get their initial capital from VCs simply means that 99% of new businesses are bad ideas.
BTW, of $864m of Q3 VC investing in “industrial/energy”, 60% went to SV vs. less than 5% for Boston. Wesoff noted there were more deals being done for smaller amounts in 2009 than 2008.

Still, I think the anecdotes of a few individuals would have benefitted by adding the perspective of an academic or researcher, to address several other points:
  • Where is the VC money going within cleantech? If you’re not in those areas, are you toast?
  • What models require VC (that “capital intensive” story) versus ones that are unlikely to get VC?
  • How do you scale without outside investment?
  • What do we know in general about sources of funds for high-tech startups, particularly during these difficult economic times?
With the current economy, I have seen a lot of SV events around bootstrapping in the past year. Admittedly, no one can build a $100m factory by bootstrapping, and many of the businesses that most excite the audience (especially VCs) are the ones that are going to grow fast or die trying.

Still, some of the people in the room seemed keen to get their business of the ground — to make a difference somehow — and perhaps sell out early to a larger firm that has the resources to take it the rest of the way. Perhaps a separate event could focus on getting early stage companies off the ground — to proof of concept — a topic that would be eagerly embraced by many in the audience and of course fits the EBC’s mission.

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