follows are some thoughts about a recent Mass Hydrogen Coalition meeting on CleanTech financing. The meeting was packed, with maybe 100 people crammed into a conference room at the Foley Hoag Enterprise Center in Waltham.
The presenters were VCs or investment bankers. Most of the attendees where consultants, like me, or small businesses looking to get into the CleanTech space, a small handful of larger players were there.
My general comment is that everyone’s saying that the world has changed for this sector, but most of the rhetoric sounds more like lessons learned than any real philosophical change among investors.
Of special note was the repeated claims that with the current stimulus plan’s emphasis on CleanTech, the government is now the largest CleanTech VC investor. That seemed like an opportunity to recon sider
how to build businesses in this space, but the rhetoric from the VCs and the small companies sounded like a colloquium at the Rush Limbaugh institute for economic theory. ” Anything the government does is bad.
I don’ t wan
t them choosing which technologies will win in the renewable energy space. They’re idiots and they don’t know what they’re doing.” (I’ll note parenthetically that nobody thought that an incentive that helped their specific sector was ill-conceived or stupid.)
Now, is this any way to talk about the largest new entrant into the CleanTech finance sector? I think not (at least if you’re looking for money to fund your startup). What will be required, however, is a change on the part of businesses to understand what “return” means to a government program funding a small early stage company, and how to distinguish this from the purely monetary return that VCs have trained entrepreneurs to discuss ad-nauseam in their business plans and pitch decks.
Here’s a new thought. When pitching your business to a government funding program, make a thoughtful attempt to calculate not just revenues and EBITDA (as you would for a VC), but the number and kind of jobs that will be created. Ask a typical chief executive how his (<- intentional gender choice) company is performing and he will likely offer financial performance numbers.
“Profits are up! We’ve cut costs and our margins are bigger than ever!” I doubt you’ll ever hear “we’ve expanded our workforce by 10%” or “we’ve raised wages by twice the cost of living this past year.” But if the government is your funding source,
these are exactly the kinds of metrics, the kinds of returns that they
are likely to be seeking.
The government has no real interest in picking technology winners. They’re interest is in maximizing the political capital that can be achieved with a given amount of funding. Putting people to work in stable high-skill good paying jobs is the kind of thing that gets politicians elected, and it’s the kind of thing they’ll fund. Make that case and you’ll get the money (of course you have to have your technology worked out as well).
The loss of quality jobs is a generational problem for the US.
Paying for low-skill “shovels in the ground” will only delay the broader problem.
Creating and training a new workforce to make things and to engage in continual retraining is the name of the game.
CleanTech provides that opportunity, and finds a ready and willing partner in the newest big VC in town: the government.
some random snippets from the evening’s presentations (words and ideas you may want to be familiar with when talking with the grown-ups).
- CleanTech is a systems field (you must consider the end-to-end consequences of any new technology)
- It’ s hard to do
something capital efficient on the generation side. This is the lesson learned by the early stage investors. Creating a fuel to replace gasoline requires enormous scale, and thus enormous capital before achieve a return (the same is true for large wind and solar).
- Because of the above, most new projects are on the demand side because they are less capital intensive (efficiency is an example)
- VCs looking less for end-to-end and more for innovation licensing.
This is a business model question, and mirrors the biotech model, get the technology to the stage where it can be scaled, and let one of the big-boys scale it (they’ve already made that investment).
- Water is a hyper-local issue (it is the new oil).
- “The game is not worth the candle.” Definition: what we would get from this undertaking is not worth the effort we would have to put into it. The saying alludes to a game of cards in which the stakes are smaller than the cost of burning a candle for light by
which to play. (<- a nice piece of jargon to impress your VC friends, though I believe the actual quote was the “candle is not worth the game,” which makes less sense to me).
- moving and making making water
- dealing w/CO2
- create more distributed electricity
- large scale energy storage
- electric vehicles
- design and build sustainable products
- IT to manage energy use
- smart grid, smart consumer
- efficient land use
- what to do with waste
- US Navy is largest purchaser of renewable energy (cost of moving fuel is 60% of cost of war).