15. âcleantechâ But in particular, corporate investors and family offices can bring value to the table that cleantech needs âventure capitalâ specialization Access to channels Corporate investors, and also family offices (via direct investments in service companies, or via other corporations the families own), can open up access to channels that so far have been difficult for cleantech startups to navigate. Project financing The âfirst projectâ challenge is a huge one for capital-intensive cleantech startups â rarely will traditional energy project finance firms provide financing for Fab 1 or Installation 1 (or #s 2, 3, 4, etc). But with their deeper balance sheets and flexibility, corporate investors and family offices can help fill this role. Key insights Thanks to their corporate networks, these players can also help reach into the traditional industries to help hone sales approaches and provide important context that independent cleantech startups might otherwise lack. new models shakeout So far, corporates and family offices havenât been good at these 3 value-adds, but by 2015 these muscles should develop
16. âcleantechâ Given the wide variety of techs, markets, types of engineers, stages of development, etc. in cleantech VC deals, itâs hard to imagine any one firm can cover all of them effectively. âventure capitalâ specialization new models shakeout How can you know about all the tech being developed across so many govât and academic labs, in garages, in corporate R&D, etc., when you have to cover so many techs? How can you effectively diligence an opportunity when you donât intimately know the market, the players, the tech options? How do you know what the pain points are? How can you find and recruit the very best managers for risky early-stage companies when you havenât been walking the halls of the established companies, and serial entrepreneurs donât exist? How can you get C-level attention for a startup in a crowded market, when youâre on your second or third time engaging the larger company, at best? Dealflow Diligence Hiring Opening doors
17. âcleantechâ And yet so many cleantech investors have invested in an unconnected âchecklistâ of sectoral bets âventure capitalâ specialization new models Example: Three cleantech VCs shakeout Do you see a unifying principle? Do you think these investors can bring deep expertise and networks to all these investments? Is it any wonder that so many new cleantech investors look first to solar, with all of the groundwork that has been laid there in terms of analysis, networks, entrepreneur population, etc?
18. âcleantechâ Cleantech VCs have been almost maniacally focused on proprietary IP plays⊠âventure capitalâ specialization âŠSO WHAT? new models With so few exits in cleantech, thereâs little evidence to show that the way to play the sector is a very biotech- and nanotech-like model of investing in special intellectual property. Proprietary IP takes longer to bring to market, and makes it harder to use off-the-shelf components. Capital intensive, risky, long timeframes. So many of these âbreakthrough techsâ are simply yet another way to produce a commodity. No matter how many patents you have, thereâs always another way to produce that commodity. These efforts simply chase the cost curve. Does the solar market really need 200+ venture-backed solar startups? Is one of them so special that it will blow the others away on the basis of tech alone? Other venture sectors, like software and web investing, are already very comfortable with the fact that success requires smart business model reinvention, and superior execution, and not patents. shakeout In some cleantech sectors, a focus on proprietary IP as a key investment criterion can make sense. But cleantech VCs will need to learn to embrace execution plays, ones that create defensibility and scale through other means.
26. âcleantechâ Toward a more global industry âventure capitalâ specialization The U.S. federal government is showing few signs of being capable of tackling comprehensive energy strategy. Meanwhile, other markets around the world are becoming more attractive. Cleantech VCs, particularly âBuildersâ and âLast Round Investorsâ, will increasingly look to deploy capital outside of the U.S. â particularly for investments in opportunities in downstream portions of value chains. Buildersâ increasing level of specialization will also help them attract capital from sovereign funds as co-investors and LPs, when those countriesâ strategic goals align with the fundâs sectoral focus. This will further pull cleantech VC dollars outside of North America. International investing is not currently a core competency of most cleantech VCs, however, so this will have to change. new models shakeout
27. âcleantechâ Cleantech venture capital: Heading toward a ârebootâ âventure capitalâ Even the continued slow rate of exits will slowly build a better track record for the sector, help LPs get comfort. Right now, LPsâ advisors are often telling them to back away from VC and cleantech Until then, cleantech venture firm fundraising will be difficult. Even established funds are having a hard time raising their next fund. Some firms will go away. Others, faced with raising smaller funds, will see attrition even at the senior partner level⊠Cleantech teams at generalist funds are often shrinking, or being dismissed. Brand new funds are having an especially hard time attracting LPs. To overcome LP reticence, both existing and new GPswill ask for less management fees, more carry. And hone their pitches to better demonstrate how they can be differentiated and additive. More specialization will help LPs who ARE interested in cleantech venture capital to make multiple commitments, across more theses. There will be a wave of âCleantech 2.0â funds, often staffed by experienced investors breaking away from their current funds. specialization new models shakeout In the end, the cleantech market opportunity (w/ markets ~4x bigger than IT markets) is too big for LPs to ignore.