Clean Tech: Still a Good Bet for the Long-Term Play
From a PR viewpoint, the only thing worse than having a CBS "60 Minutes" crew show up unexpected at your office is to agree to cooperate with them only to find the story that aired was completely different from what you expected.
That's what happened to venture capitalist Vinod Khosla. He had arranged for crews to interview and film at two clean tech companies in which he is an investor: "KiOR (KIOR), a struggling biofuels company whose footage made the final cut; and View, a promising maker of electronically-tinted glass for commercial buildings (it just raised another $100 million), whose footage was left on the editing room floor," as Fortune reported.
Although a producer allegedly said that the theme of the piece was that clean tech was at a "crossroads," the title of what aired was "The Cleantech Crash."
Clean tech energy? Billions invested, nothing to show for it. Except, Khosla said that the piece made numerous serious errors, including the following he detailed in an open letter published on Fortune.com:
- He invested "substantially less" in clean tech than the $1 billion the show claimed.
- Returns for this so-called "crashed" sector, at least in his portfolio, were "significantly above the venture capital average."
- The often maligned Department of Energy loan program has seen a default rate of only a few percent, making it seem successful.
- Much of the DOE loan money has gone to a variety of energy industries, including solar, nuclear, biofuels, and wind. But the total is insignificant to the hundreds of billions in subsidies fossil fuel companies can get annually.
- In general, clean tech is an area in which the U.S. competes effectively and can expect to do better.
- The statement that the VC business model sees 9 companies go under for every success is simply incorrect.
The Real State of Clean Tech
Let's ignore the he said/she said media dispute for a moment. The question for entrepreneurs is whether clean tech is an area in which it makes sense to build a business, or is the sector really crashing?
First you have to ask over what time frame. Clean tech is not a short-term, I'll-build-an-app-and-sell-out-to-Facebook deal. It takes years to invent a technology, test it, and then see if there is a viable process to make it work on a large scale. Many ideas that sound good in a lab are impractical for commercial roll-out. This isn't an issue of clean tech, but of any technology, whether you are creating coatings and films, new twists in steel manufacturing, a method for making semiconductors smaller, a treatment for a common illness, or a plant-based replacement for oil and gasoline.
Some technologies are more likely to need longer periods of time for developments. Biotech is an example. So is clean tech. Patience is important, because otherwise you'll be tempted to ride waves of popularity based on how people and businesses think fuel prices are screwing them. An example was the 1970s, when solar power research was humming, until oil prices dropped and people assumed that energy would be cheap and plentiful forever.
There's been some drop-off in clean tech VC investing over the last few years, according to the PricewaterhouseCoopers and National Venture Capital Association MoneyTree Report. That is understandable as increased gas and oil development in North America has helped keep a handle on energy prices.
But quarterly investment is still in the hundreds of millions of dollars. Solar panels offer a great example. Once seen as almost speculative research, practical use of solar panels to generate power is almost taken for granted. Even a company like Walmart has installed the devices to lower its energy prices. This is not theory but real business.
Clean tech can't guarantee that your company will be successful. But a broken and failing sector? Puh-lease, it's a little more renewable than that.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.