Guest post by Rob Day, a partner with Black Coral Capital in Boston.
When the folks at Greentech Media asked me to chair their upcoming “ NextWave Greentech Investing ” conference taking place at SRI International headquarters, I immediately said yes. The chance to have many of the more active and innovative investors hang out together for a day, talking about how they’re trying to reinvent the sector, is just simply going to be a lot of fun—and hopefully pretty informative for entrepreneurs in the sector. Certainly it’ll be a good place to look for funding!
But it still begs the question: What exactly is this next wave all about? How do you define it? Ive touched upon this question a bit in past columns on Greentech Media’s Cleantech Investing blog, but mostly by talking about what it’s not. The concept is clearly about creating new approaches to generating strong returns in the sector, and acknowledging past underperformance, but again that’s not really a guide to what these new approaches look like. So I thought it might be helpful to describe how I’m thinking about the next wave of greentech investing:
NextWave Greentech Investing is about new investment models, not necessarily new investors.
It’s tempting to start talking about new investment models and quickly start focusing on the emerging new investors deploying them. But as I wrote about a few weeks back, one of the more encouraging things I’ve gotten to witness recently was a room full of very smart and very experienced greentech VCs all brainstorming about new models.
I’m seeing a lot of this. Experienced VCs like Raj Atluru who are launching smart new efforts like Silverlake Kraftwerk. Personal conversations with great VC leaders like Josh Green of MDV, where we excitedly compare notes on the huge potential for information-driven investments in the sector. Even high profile firms like Kleiner Perkins, for all of the grief folks have been giving them lately for their greentech investments that haven’t worked out, have in my humble opinion a bunch of really smart investments in their greentech portfolio that will end up doing very well for their LPs — investments that often clearly demonstrate new ways of thinking about value creation in the sector.
The next wave of greentech investing is really being driven by many of the existing leaders of greentech venture capital. It’s about new thinking and new models, not new firms. (Okay, also some new firms, too!)
There is not one new approach to NextWave Greentech Investing. It’s about a variety of new, sometimes specialized, approaches.
At the conference, we’re really going to be highlighting what a healthy and fascinating diversification of investment models there are right now in the sector. From investors focused on business model innovation and near-term revenue like my firm, to investors focused on finding returns-generating pathways for deep technical innovation with long gestation periods, and everything in between, there’s no one “right” way to generate returns out of this huge megatrend around natural resource scarcity.
This diversification, of course, makes it correspondingly difficult to come up with a single concrete definition of what this next wave is all about! But I think that’s healthy. It speaks to the maturation of the sector, that we’re now seeing a variety of pathways to returns.
NextWave Greentech Investing is about pragmatic approaches to generating returns.
We all carry the battle scars now from the past decade’s efforts. No more wishful thinking!
This next wave we’re engaged in acknowledges and plans for non-economic barriers to market entry and adoption. It’s no longer just about getting costs down to a certain target.
This next wave doesn’t plan for a price on carbon or other major policy shifts, no matter how inevitable they may seem.
This next wave takes practical approaches to managing capital needs—with a variety of creative non-dilutive sources and financing and partnership structures.
This next wave doesn’t assume that Wall Street will reward us just for the social benefits we’re creating, or for our audacity. Building good solid businesses that are likely acquisition candidates is the focus—and by the way, some of these are ending up as IPOs even in this tough market!
NextWave Greentech Investing is about capital efficiency.
Gone are the days of raising a ton of capital and throwing it at a technology development effort. A lot of the more interesting efforts as part of the next wave are web-based or are service models and thus require a lot less capital to get to a proof point.
And even when a next wave investor is instead backing an early-stage technology development effort, these days they know to run as lean as possible for as long as possible.
That’s not to say there won’t still be some really big later-stage venture rounds. But these will look like really big later-stage venture rounds in any other VC sector: They will be growth equity rounds supporting companies that already have significant market momentum, not just a lot of hype.
NextWave Greentech Investing is about solutions, not technologies.
I have to watch what I say carefully here, I’ve found, since a lot of folks read sentiments like this as me being anti-technology. Nothing could be further from the truth.
But even when a startup is pursuing deep technology innovation, next wave investors know that such innovation by itself won’t be enough. If you hand a customer a new technology, you really are handing them a problem in the guise of an answer. They have to figure out how to evaluate it, how to implement it, how to integrate it into their other existing processes… It’s clear when you look at the number of “good ideas” that haven’t seen the market adoption they deserve, that there’s more to it than just the innovation itself. The customer needs to be handed a full solution that is just really, really easy for them to adopt, not just economically advantaged.
If you look at the companies we now think of as being leaders in the greentech sector—companies like Tesla, Nest, SolarCity, Digital Lumens, Harvest Power, EnerNOC and others—they provide full solutions to their customers. They didn’t just innovate a technology and then go see who wanted to buy it. They integrated that technology into a solution that makes it easy for customers to say yes.
The past few years have been a period of introspection and reinvention for the greentech venture sector. We’re now seeing a variety of answers come out of that exercise, and early positive results. That’s what the next wave is really all about. It’s time to put some runs on the board.