What do investors say about Greentech today and where are we going next. How can Cleantech companies and entrepreneurs succeed?
In the past two days, several investors at the GoingGreen Silicon Valley 2012 conference discussed the future of Greentech in the U.S., and in other countries. Their message was clear: Building the infrastructures is imperative. We need to address the hard stuff first in clean tech, such as Smart Grids and water grids, now. If we don’t invest in infrastructure, we will not have the foundation our nation needs to live, conduct business, and grow in the next decades. There are parallels between the Information Communication Technologies (ICT) and Greentech: the investments in the technology infrastructure, network and wi-fi communications, and in computing have paved the way for social Media, mobile commerce, etc. Innovations like Facebook take such advancements for granted.
Today, one of the challenges investors face are the risk profile of the entrepreneurs they evaluate. Many investors try to balance the risk adjustment factor, addressing several chancy components such as asset risk, regulatory (i.e. non-existent or forthcoming policy), or capital risk. In addition, while capital-intensive investments are less attractive, many innovative ideas rely on the utility industry adoption, change of business and financial models, along with a deepening consumer consciousness toward ‘green’ products or services. But, in reality, it is hard to change consumer behavior patterns and utilities are very slow to respond.
The National Renewable Energy Laboratory (NREL) predicts that commercially available renewable energy technologies, coupled with improvements to the electricity grid, could provide up to 80 percent of U.S. power generation by 2050. The NREL is funded through the U.S. Department of Energy (DOE) and is operated as a private entity. NREL is a key U.S. laboratory for research and development of renewable energy and energy efficiency.
Is it a fantasy that energy can be commodified in a free market? The energy domain is not a market economy, where decisions regarding investment, production and distribution are based on supply and demand, and where prices are determined in a free market system. Energy in any country presents a regulated market where governments regulate it to varying degrees rather than allow full self-regulation by market forces. In the U.S. energy is heavily regulated.
Navin Chaddha, Managing Director at Mayfield Fund, talked about business success in America. Essentially, the green domain is like any industry and business sector. Real problems need solutions and the green tech space needs to provide ‘painkillers’-type of solutions and not the vitamin kind, i.e., the nice-to-have remedy. Consumers will buy painkillers, but may not choose the vitamins or might decide to address such offerings later in the future. Entrepreneurs must ask themselves: will life still continue if we don’t use the green idea, product, or service?
So how can a company succeed? Chaddha gave a few examples of successful companies that know how to appeal to customers:
Solar City provides residential and commercial customers solar energy that is cheaper than the regular utility-supplied electricity. Furthermore, Solar City handles everything about the solar project, from development, financing, installation and servicing. Such value proposition is very appealing to customers.
In the lighting sector, LED has taken off too. Price went down and additional benefits were facilitated for users, making the investment cost-effective, demonstrated energy savings, improved building maintenance and operations, and more.
Another example is Toyota Prius and Tesla Motors: these auto manufacturers are creating a product that consumers want, with the features and added cool benefits at a competitive price. Tesla is one of the remarkable success stories in 2012. Model S received the ‘Car of The Year Award’, winning over other conventional and hybrid vehicles.
Read more about Tesla and Cleantech investment here: Where is the money in cleantech? A take from the VC world.
The ability to come up with ideas, pivot to where the markets are, practicing nimbleness, and diligently focus on solving a particular problem – helped Tesla become a leading automaker. Elon Musk, CEO and Product Architect of Tesla Motors, didn’t aim to create just another car. His innovative engineers are focusing on solving electrical drivetrains and related challenges, not automobile mechanics. Tesla’s innovations in the electric vehicle space, car battery advancements, and the connected-car concepts have led the company to win the ‘car of the year award’.
In spite of a long window of returns and lesser ROIs (return on investment), some of the financiers at the conference called on their colleagues to bite the bullet and invest capital in the energy infrastructure. Time will tell if the message was heard and acted upon.
Read more about Kevin Genieser, Managing Director and Global Head of Clean Technology Banking at Morgan Stanley, talk about the state of Greentech financial markets: The state of Greentech investment and outlook for 2013
INFORMATION about the AlwaysOn (AO) network www.aonetwork.com and event series: www.aonetwork.com/AOEvents. Events include the Silicon Valley Innovation Summit, OnMedia, OnHollywood, Venture Summit Mid-Atlantic, OnDemand, Venture Summit Silicon Valley, Venture Summit East, GoingGreen Silicon Valley, GoingGreen East, and the Global Silicon Valley Economic Summit. Tony Perkins is the Founder and Editor of AlwaysOn Networks.