Last night, I attended a meetup in San Francisco organized by Cleanweb SF. The topic of discussion was whether investors were ready to invest in cleantech in a big way. While the definition of cleantech is a little squishy, it could be considered to include any company that uses software, hardware, and/or data to address an environmental or sustainability concern. The problem space includes water conservation, energy conservation, solar, and agriculture, to name just a few categories. At issue was:
- whether cleantech could offer venture-style returns,
- how software addressing the needs of cleantech could provide those kinds of returns,
- how to bring in experts from Silicon Valley to the cleantech world, and
- alternatives to venture funding.
The panelists were Jake Saper from Emergent Capital (@jakesaper), Deepa Lounsbury from GE Ventures (@deeps05_), and Dave Selinger from Silicon Capital (@daveselinger), and the moderator was Elena Lucas (@elenaSCS). All four were motivated to go into cleantech because they considered climate change to be the main challenge of our times, as I do. Historically, the organizations working most on climate change have been non-profits, so there is potentially a massive opportunity to do business in this area.
Software = where VCs will back cleantech
The discussion was kicked off by Jake who discussed his article in TechCrunch, How Solar Software Can Save The World. As the partner behind Emergent's Natural Resources Cloud group, he sees a tremendous opportunity in providing software to solve the problems of the solar industry. As a case study, he cited Veeva, a company that built Salesforce for the pharmaceutical industry. They raised only $6 million, yet went public for $4 billion, providing an example of how a software-as-a-service company can achieve venture-style returns by solving the problems of a specific industry. In solar, the state of software is quite archaic, despite the common stereotype of it being on the cutting edge. In terms of marketing and customer acquisition, solar is still primarily sold through salespeople at Loew's and Home Depot.
Deepa spoke next about GE Ventures and its focus on business creation. She said that GE has recently recognized that they need to become both a hardware and software company in order to succeed going forward. Moreover, they recognize that while 1/3 of all electricity generated today is generated on GE equipment, they need to make investments in distributed generation in order to protect that market share. So they created Current, GE's distributed electricity generation arm.
Both Deepa and Jake mentioned that GE and other venture funds see the primary opportunity in software. Software presents the easiest opportunity to achieve venture-style returns on a short enough time scale. Moreover, both GE and venture funds have been burned investing in cleantech hardware, which was the primary focus of investment in cleantech back in 2007-2008.
Bringing the rest of Silicon Valley into Cleantech
One call to action raised from this discussion was that the cleantech space needed more people with enterprise, software-as-a-service experience. Most of the people going to hackathons, starting companies, and attending events were people in the solar industry already (solar nerds). Having people with the experience of building large software applications with business applications would be immensely valuable to the cleantech space. This is the primary reason that Cleanweb exists as a meetup to begin with.
Is VC the only way?
Finally, Dave Selinger talked about how after founding several different companies and advising different non-profits, he wanted to maximize the impact he was having on the world, and so he basically hit the reset button. To tackle climate change, we need to figure out how we can achieve the big drawdowns in emissions. He mentioned that there were huge opportunities not just in energy, but in landuse and agriculture. Actually, agtech had one of the biggest venture exits, when climate corporation got purchased by Monsanto for $1 billion.
But Seli also mentioned that he believed venture funding was not necessarily the right vehicle to do cleantech investing because the time horizons are too long and the payouts potentially too small. His focus has been to increase the prevalence of progam-related investments, which would allow foundations to invest in for-profit companies.
The panelists identified a number of hurdles for cleantech success: in electricity, they are operating in a regulated market, so their customer base moves slowly, and the industry is capital-intensive. As Deepa mentioned, it is not like social media where a post can go viral in seconds; a lot of work and investment has to be made. That being said, customer acquisition at scale can be done: signing on a single utility can lead to 10 million new users of your product.
There was also an interesting discussion about motivating both potential employees and customers to join the space. Averting climate change and saving energy are not winning arguments. There were four different companies mentioned in the talk: Nest, Tesla, Solarcity, Opower, and Climate Corp. The first two consumer-facing companies achieved success not by selling their customers on the environmental benefit, but by providing high quality products with great user experiences. Jake believes that Solarcity's success has a lot to do with the "virality" of solar panels looking cool on one's roof. I would add that net metering and the investment tax credit have allowed Solarcity to sell electricity to homeowners at much cheaper rates and they have been most successful in states with really high electricity prices. Climate Corporation's main product was crop insurance to help farmers through bad times. In each case, the companies were addressing another fundamental need, and the environmental benefit was secondary.
So are investors ready to take the plunge into cleantech? Will they make a lot of money as a result? And is the rest of the thriving professional community in the Bay Area ready to dive in? There are certainly encouraging signs, but it is still very early. The reality of climate change necessitates that new companies will have to emerge that will drive the adoption of products and technologies that result in lower carbon emissions. Those companies stand to take a lot of money from that transition.
Some of the best tweets from the night: