Cleantech Bubble A Red Herring  

Posted by Big Gav in ,

CNet's GreenTech blog has a post on the belief that there may be a bubble forming in cleantech investment - Clean-tech bubble talk is a red herring.

It's fashionable these days to ponder whether there's an investment bubble in clean tech. But I believe this discussion obscures a bigger problem for the clean-tech crowd: not enough money.

A panel of venture capitalists at the Technology Review EmTech 2008 conference on Thursday took the bubble question head on. The response from investors tends to be nuanced: no, there isn't a bubble, but there are some silly company ideas getting funded.

Before I delve into the details of the bubble debate, let me say that focusing on venture capital deals is a myopic view of the market that could ultimately give the "clean-tech revolution" a bigger black eye than just a few failed start-ups.

Clean-, or green-tech, venture capitalists will tell you times have never been better if you judge by the number of business plan proposals crossing their desks and their ability to raise funds. Many an entrepreneur and investor sees energy and environment as a ripe area for technology innovation.

What worries me is whether the hundreds of newly formed energy tech companies will have enough capital to actually succeed--and change the world as they all set out to do.

Insiders have been fretting about the dreaded funding gap, or "Valley of Death," for years. It's the stage a company must cross to take its technology to commercial scale, such as building a manufacturing plant. In energy-related businesses, it usually take lots of money.

Now the financial crisis could actually make that gap tougher to bridge, given the difficulty in the public markets and the projected cost of an anticipated Wall Street bail-out plan.

Spending hundreds of millions of dollars for say, a solar manufacturing facility, is outside the range of most VC funds. To some extent, project finance can fill in the gap, said CMEA Ventures investor James Kim.

"But if that doesn't happen, you will have all these great energy technologies which are ready to be deployed at a large scale and they have nowhere to go," he said during the panel.

Hedge funds have invested in some of these late-stage funding deals, but turmoil on Wall Street could tie their hands. Loan guarantees from the federal government are possible. But the prospect of a $700 billion Wall Street bail-out puts the availability of those funds--or some massive government-led energy initiative--into question.

A business model around private equity companies, such as the Carlyle Group and Hudson Clean Energy Partners, to invest in energy is clearly taking hold. But Kim notes there are limitations: private equity firms don't jump in unless they are sure a clean-tech company's product will work. ...

The good news is that energy is an issue that transcends today's crisis. That means that the ultimate customers of green-tech products--be it a utility, corporation making a green building, or consumer--are not going away. ...

Venture capitalists will generally tell you that the energy business is so big and the problems--whether it's energy security, cost, or climate change--are so acute, it's hard to see the few billion dollars a year going to clean tech as overly exuberant, particularly when viewed over the long term.

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