Header graphic for print
Green Tech Blog Established in 2009

The VC Model: Square Peg for Round Hole When It Comes to Cleantech?

Posted in Capital and Funding, Entrepreneurs, Events, Sustainable Business

By Rebecca Anderson

Although all things green seem to have a lot of hype in the business world, we must ask, is all this hype because there is a real opportunity for high rates of return on investments in cleantech or is it just hype? In an interesting article, a Harvard student discusses the case made by Professor Joseph Lassiter of the Harvard Business School that the VC model that depends on an exit within 3-5 years just isn’t the right fit for cleantech companies.  Prof. Lassiter’s main and, rightfully fair, points are: (1) the development of products in the cleantech sector takes many years; (2) it takes massive amounts of funding to deliver viable production volumes and it is difficult to bridge the financial gap between the lab and going to market; and (3) the industry is heavily dependent on public policy.

That’s not to say the above factors apply to all cleantech sectors.  For example, IT based products can be developed quicker and with less start-up cost than, for example, a nuclear energy solution and it is an area that VC’s are comfortable with.  In a recent Xconomy article describing the Northwest Cleantech Cluster of Energy Efficiency Players, 6 out of the 9 companies listed are IT based products as further evidence of the Northwest’s strong IT workforce.

The government attempted to address the funding gap that Prof. Lassiter describes with the 2009 DOE grants and it is undetermined at this point if the government’s solution will help in addressing the problem. Some recent examples of cleantech companies that received publicly funded investments and have had a successful exit are the IPOs of Tesla and A123 Systems. Our local cleantech star, EnerG2, received funding from OVP Venture Partners followed by a $21.3 million grant from the DOE in August of 2009, forcing the government and a venture fund to become partners.

So it appears that the VC model isn’t entirely lost on the cleantech sector.  To hear more about a VC’s perspective on cleantech investing, come join Graham & Dunn at an upcoming MITEF event to hear an analysis of the high tech opportunities in the smart grid by Rick LeFaivre of OVP and other cleantech experts.

For those of you that don’t make it, I will report back my findings and hopefully, for all you cleantech entrepreneurs, the report will be that the peg is actually round.