Peering Over the Valley of Death at the MIT Sloan Energy Finance Forum
The second annual MIT Sloan Energy Finance Forum, which focused on the lifecycle of energy finance, was held last Friday at the Sloan School of Management at MIT. I am not someone interested in working in finance, but I decided to walk across campus to get a sense of the state of the sector in case I ever am in the position to develop a business from a technology I may develop during my time as a student here at MIT or afterwards.
As a fourth year PhD student in mechanical engineering, I have been around the block before; I have gotten to know a couple generations of Sloan MBA students, many of whom are very eager to find a technologist—someone with a potentially marketable technology—and lead this unsuspecting engineer or scientist down the path of soliciting investment and business development. I have not yet come across what I would consider to be a marketable technology during my graduate work, but I figured that this forum would afford me a good opportunity to understand this pipeline and what I may possibly encounter.
What struck me most at this event was the pessimism among the mid- and late-career professionals within the energy industry, especially those who deal with early-stage investments in promising technologies. This was quite surprising to me after my past few years at MIT interacting with very optimistic Sloan students. It was through the lens of this disconnect that I tried to make sense of the conversations during the forum.
The opening keynote was delivered by Department of Energy CFO Steve Isakowitz, who echoed Secretary of Energy Steven Chu’s recent musing as to whether the United States is missing out on its “Sputnik moment” in energy. If there isn’t a national effort focusing on the development and deployment of new energy technologies, this new industrial revolution would be missed. However, Isakowitz’s message became more optimistic as he spoke on the Obama administration’s policies directed at energy technology investment. With sustained government policy, he argued, private investment would continue to enter the market and allow for continued technology development and the deployment of those technologies which are economically viable.
By the midpoint of the first panel, entitled “Dirty Little Secrets About Energy Venture Capital”, the conversation shifted to the consideration of whether the venture capital industry’s traditional model was sufficient for the sustained development of energy technologies. Ramana Nanda, assistant professor at Harvard Business School, argued that venture capital firms were not prepared for the structural challenges of investing in energy: the regulation, the product as a commodity, and, most importantly, the low and long-term returns in this capital intensive industry. Venture capital firms entered the energy space with the false assumption that they were entering white space similar to their previous successes in information technology, but were unprepared for the fact that they were entering an industry of massive scale, regulated markets, and a fully developed (though aging) infrastructure.
As a potential technologist, this was the most startling lesson from Friday—that the very people who are supposed to be the ones escorting innovators over the “valley of death” to a profitably deployed technology were the ones most unsure of their ability to perform the task in front of them.
Fortunately, I was able to leave this event optimistic about the potential for continued investment and innovation in energy. This was because of the sheer interest from students of my generation, the up-and-coming leaders in energy. The lecture hall was filled to standing-room only with a great mix of professionals and many students from across MIT and the many other great institutions in the Boston area.
Perhaps the most heartening thing, however, was the fact that I wasn’t the lone PhD student in the room. There were many others who made the trek across campus with the hope of gaining a deeper understanding of the current landscape of energy investment. These twenty- and thirty-something burgeoning energy professionals—MBA students, technologists and policy students alike—are the ones who will be forging their way across the valleys of death together, and I am excited that everyone in my generation is still chock full of optimism.