Thursday, April 13, 2006

Some thoughts on today's PE Week Wire

Dan Primack (the mastermind of the mandatory daily reading, PE Week Wire) had some interesting comments today, regarding a cleantech b-plan contest he judged yesterday:

On Tuesday night I helped judge the semi-finals of a clean-tech business plan competition up in Lowell. Almost all of it was off-the-record, but a few quick observations:

* Lowell is home to Konarka, a VC-backed company that makes flexible photovoltaic materials (particularly for military use). Listening to clean-techies talk about Konarka is like listening to Web 2.0 disciples discuss Google, except without the malevolent envy. It seems that almost every photovoltaic b-plan was viewed through the Konarka lens. Big-market folks like GE, however, were hardly mentioned at all.

* I was on a judging team with Robert Shaw of Arete Corp. He is a clean-tech know-it-all, but in the most literal sense.

* Most of the b-plans involved solar tech, which apparently reflects the larger clean-tech market opportunity. Not wind, biofuels, hydrogen, water, etc. – but solar. This is probably old hat to many of you, but was new to me.

* There were a bunch of clean-tech VCs at the event, and I tried to ask each of them the following questions: “Is there enough clean-tech dealflow to justify the amount of venture capital being allocated to the space?” The unanimous answer was “no.” Kind of reminds me of China...

It's shocking to hear that people in Lowell like Konarka...

Some other points Dan made were a bit more surprising, at least in light of available data and conversations I hear among fellow cleantech investors... Taking them in turn:
  • Regular readers of this site will know that cleantech dealflow is about a heck of a lot more than just solar, despite the fact that it was the "hottest" (pardon the pun) sector in 2005. In fact, breaking down the Q3 2005 numbers from the Cleantech Venture Network (the most recent available, unfortunately), about 59% of cleantech venture funding in that quarter was energy-related (versus clean water, materials efficiency, etc.), of which a little less than half was generation-related, and of which only some certain portion would be solar related [note: The CTVN was an early investment of my firm]. These numbers are imperfect, but should be at least directionally correct. So at best, we can assume that solar remained less than 25% of total cleantech dealflow in that quarter, probably significantly less. Indeed, anecdotally it appears that in 2006, a lot of cleantech VCs have turned their attention to other areas such as biofuels and clean coal alongside solar. So "cleantech" doesn't equate to solar alone, or even predominantly. Solar is, however, getting the most press attention and has recently seen the most high profile IPOs...
  • Regarding the "larger cleantech opportunity," solar also doesn't excessively dominate. According to Clean Edge's most recent numbers, biofuels were a $15.7B market in 2005, solar was $11.2B, and wind was $11.8B. Clean water technologies weren't tabulated, nor were the other cleantech sectors, but these are not small markets by any means either. Not knocking the solar opportunity at all, but again, regular readers of this site will know that it's not the dominant portion of the "larger cleantech opportunity."
  • Regarding the comment about too much capital chasing too few deals in cleantech... It's a fair question. But if you ask any VC (at least ones not current fundraising) in any sector the question "is there enough dealflow to justify the capital entering your space," what do you expect them to say? "Yes, actually, there's plenty of dealflow, so I invite everyone else to come into my sector." Just saying there might be a bit of understandable self-interested bias in the "unanimous" answer that was heard... As for me, I'll just note that I've been working my tail off lately...
[4/17 update: See Dan's thoughtful response here.]


Blogger Jean-Luc said...

Invited or not, lots of people are coming into the CleanTech Sector. The challenge for some of the established CleanTech funds is when a deal everyone else passed on is invested by a tenderfoot. If the deal does well, then the guys who passed will be asked about why they missed it. And if the deal is a high profile blowup, it could taint the sector.

CleanTech’s proxy has been solar. Just like biofuels are identified with ethanol.

Investors pursue topics they understand. Solar seems to be easier to understand than other technologies. More familiar, and perceived to be more stable.

12:03 PM  

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