Tuesday, May 10, 2005

The Deal: Is clean technology at a tipping point?

There were two good cleantech articles in The Deal yesterday:
  • The first discussed whether clean technology venture capital is at a "tipping point". The reporter did a good job of talking with a good number of players in our industry (including Diana Propper, one of the partners at Expansion Capital Partners), and exploring a lot of the issues at the heart of the question, "Is cleantech the next big thing?" Eric Prouty's statements do a particularly good job of noting some of the inherent limits on the role of venture capital in the various markets "cleantech" addresses, while also speaking to the potential. The article is a good overview of our industry segment right now -- although as usual it focuses much more on energy than on the other sectors cleantech investors also care about, such as clean water, clean manufacturing, and advanced materials technologies, etc.
Whether fuel cells play a leading role or not, clean technologies may indeed be at a tipping point. As GE's announcement yesterday illustrated, the need for step-change resource efficiency gains through technological innovation is filtering into all levels of the economy. At the same time (and not coincidentally), many clean technologies in energy generation, water purification, energy infrastructure, sensors, etc. are all getting to a point of maturity to where they are ready for broad adoption -- they are well-past the beta stage.

Furthermore, given the state of capitalization and investing in traditional IT, telecom and biotech markets, it is natural that venture investors will increasingly turn to industrial technologies as another potentially lucrative area for investments -- and clean technologies (which are often quite industrial in application) by their very nature are very often on the "right" side of global resource and economic trends.

Finally, as the first The Deal article noted, other factors are also coming into place, such as strong, proven management teams and improved regulatory climates.

That article ends on a slightly down note, suggesting the possibility that clean technologies could become overinvested. But at 5-7% of total VC investments today, and especially when compared to the overall size of the energy, water, and manufacturing technology markets, it's hard to make a case that we're anywhere close to that point. If anything, cleantech venture capital remains an underinvested space relative to the opportunity. And it is exciting to be investing in a market that may be nearing a tipping point, but where there are still plenty of investment opportunities as yet undiscovered...


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