I attended the SDForum Green and Clean Dinner tonight. The topic was “Where’s the Money?” Five panelists, representing a VC firm, a bank, an angel funding group, a bridge-financing firm, and an entrepreneur who has raised his money independently, discussed the various sources of funding for clean tech companies. i took extensive notes, and will provide more details later, but for now some of the highlights were:
Liquidity may be different for clean tech companies than we got used to for high tech companies during the Internet boom
Because of the technical risks involved in clean tech, the old venture capital adage of “market first, team second, and product third” often needs to be turned around
Especially for power, this is a global market – Europe is at least 15 years ahead of the U.S. in terms of regulations supporting alternative energy and other clean tech
There are a lot of entrepreneurs seeking funding – the VC read over 2,400 business plans and funded only 21. The angel investor says one of his biggest problems is “perpetual motion machine” proposals – they have to do a lot of scientific due diligence on the proposals
According to a McKinsey Global Institute report released at the end of July, the world economy will have to improve its “carbon productivity” – the amount of gross domestic product (GDP) created per unit of CO2 – by a factor of ten by 2050 to stop global climate change in its tracks while continuing to enable a healthy level of growth. The report predicts that the cost of this transformation will amount to 0.6% – 1.3% of global GDP by 2030. They note that this compares favorably to the cost of insurance born by economies, which amounts to more than 3% of GDP.
It will be essential to identify and capture the lowest-cost abatement opportunities in the economy. Analysis of McKinsey’s global cost curve, a map of the world’s abatement opportunities ranked from lowest-cost to highest-cost options, identifies five areas for action to drive the necessary microeconomic changes: capturing available opportunities to increase energy efficiency in a cost-effective way; decarbonizing energy sources; accelerating the development and deployment of new low-carbon technologies; changing the behaviors of businesses and consumers; and preserving and expanding the world’s carbon sinks, most notably its forests.
Productivity (“regular productivity”) increased by a factor of ten over the course of the Industrial Revolution – a period of 120 years. McKinsey’s call to action calls for a similar increase, but over a period one-third as long. But they warn that, if this goal is not achieved, we will all be facing lives of significant privation.
Every day I get emails about “clean tech financing this” and “clean tech financing that” – last year there was over $7 billion in investments in clean technologies in the U.S. In this interview in the San Jose Merc, Paul Holland of Foundation Capital describes some of his philosophy on clean tech investment, including a strong focus on technologies that will reduce energy demand:
“The first lesson is there’s nothing wrong with a capital-efficient investment, even in clean tech. The second lesson is, look what happens when you don’t pay attention to the first lesson.”
Foundation has just closed a new $750 million fund, $250 million of which will be focused on clean tech, primarily on the demand side, although they are making some investments in supply as well – solar and biofuels.
Holland is also building a new, extremely energy efficient home in Portola Valley, CA. One of his goals for the building is to make much of the design reusable for other new homes.
“Once you get over the custom elements, it can be reproduced if you want to go down that road.”