Cleantech Down and Dirty (Part One)

Opinion

I feel the need to start off with a disclaimer, because when you start pouring A-1 sauce on sacred cows people tend to get a wee bit irrational. Let me state for the record that I do indeed believe that global warming is a real threat. I also think that our over dependence on foreign oil is a bad thing that imperils our nation’s economy. I also believe that cleantech is an investment area of great promise with new technologies that will profoundly change our world for the better.

That said, the cleantech field—as it currently stands—is a disaster in the making, with dumb money chasing dumb investments and with shoddy science experiments being grossly over-hyped as panaceas for all that ails our environment, gas tanks, and wallets.

We all know the score—basically, we have is a planet warming from CO2 emissions, record fuel prices, near or at peak oil, exploding demand from China and India for natural resources, not to mention suburban sprawl, polluted rivers and soil, etc, etc. The hope is we may be able to fix it with behavioral changes and technology.

Cleantech is the umbrella term for the technology part of this hope. It’s generally thought of as products or services that “…improve operational performance, productivity, or efficiency while reducing costs, inputs, energy consumption, waste, or pollution.” (Thanks Wikipedia.)

The issue I have with cleantech lies in the solutions that are being focused on, and who is doing the focusing. Let’s start with the latter and look in this column at cleantech and the VC community. You know, the guys quoted in all those BusinessWeek and Fortune articles portraying themselves as the saviors of the Earth—much like Capt. Planet and the Planeteers.

According to the most recent PricewaterhouseCoopers MoneyTree survey, venture capitalists invested $2.2 billion in cleantech companies over the last year. That’s a mind boggling 45 percent jump over 2006. I have seen business plans that were laughed at a couple years ago now become the object of bidding wars by top VC firms.

Beyond the hype and money, why are the VCs flooding into cleantech? I reckon some of it is driven by a combination guilt complex/God complex for the “sins” they committed in acquiring their wealth. I won’t mention any names (mainly because it’s such a huge list), but it appears these personal pathologies factor into their drive to save the Earth with their bigger brains and purer hearts ***cough***.

Now, there are great venture capitalists patrolling the cleantech space—Rob Day of @ventures comes to mind—but they belong to a very short list. The biggest problem is that most VCs are not equipped to handle industrial plays like energy. They don’t understand the engineering, the science, the value chain, or how the public policy world works. And, even worse, they don’t seem to be taking the time to access the right people to do the due diligence for these questions either.

These days, I am watching some HBS drop-out, who sold an online dog food company back during the bubble days, in a mad scramble to blindly pull the trigger on deals that need expertise in materials science and mechanical engineering to even read through the business plan. Seriously, some of the bizarre claims being made by some entrepreneurs in their projections would make any power industry engineer simply laugh out loud. Yet the checks are flying out of investment firm after investment firm to these start-ups.

Getting beyond the scientific and technical feasibility issue, try to find a VC that understands manufacturing. Good luck. I hypothesize that the reason so many photovoltaic companies have gotten funded is because if a VC by some miracle does understand manufacturing, he almost always understands it in terms of the semiconductor field. The reality is that building a physical object is extraordinarily different from … Next Page »

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Mark just helped found a Somerville-based stealth cleantech start-up which recently spun out of Harvard. He is a veteran technology entrepreneur and the former managing director and co-founder of Bang Ventures, an investment firm based in New York with offices which focused on early stage technology investments. Follow @

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