Will the Internet Venture Incubator Model Work in Cleantech? Greenstart Is About to Find Out
If you’re an entrepreneur with an idea for an Internet startup, there’s a growing collection of venture incubators around the country ready to help you launch it—Y Combinator, TechStars, and 500Startups are a few of the best known ones. There’s even a new incubator for health technology companies: Rock Health, which we covered here a couple of weeks ago. But until recently, innovators in the cleantech or green energy sectors didn’t have many places to turn for the early-stage capital, mentorship, and business connections that incubators provide.
That could start to change this fall with the opening of San Francisco-based Greenstart, which claims to be the first venture incubator focused exclusively on cleantech. Founded by three serial entrepreneurs from the world of online automotive media, the incubator is searching for eight to 10 companies to join its first three-month session, which will start September 12. The terms at Greenstart are similar to those at Internet incubators: $25,000 per team to cover living expenses during the session, in return for a 3 to 10 percent equity stake in each company. The goal, says Greenstart co-founder Mitch Lowe, is not necessarily to create 10 revenue-producing companies, but to make sure that each team exits the incubator with a well-defined product that’s been validated with real-world customers.
Like any brand-new business, though, Greenstart will need to answer some questions of its own. The biggest is whether the venture incubator model is an effective way to start companies in the cleantech sector. Many of the factors that allow Internet incubators to churn out credible companies in just a handful of weeks—the low cost of software development and cloud-based Web hosting, and the speed with which online services can be tweaked in response to customer feedback, for instance—just don’t apply in the energy business.
Take Oakland, CA-based Brightsource Energy, one of the Bay Area’s hottest energy companies, as an example. It’s raising hundreds of millions of dollars from sources like Google and Chevron to build a huge solar concentrator plant in the Mojave Desert. It’s hard to see how a 12-week incubator program could have helped with an idea like that—and it’s going to take thousands of new energy ventures on the scale of Brightsource to start to switch our civilization over to zero-carbon energy sources.
Lowe acknowledges that big, capital-intensive energy production technologies that take years of prototyping and testing won’t be in Greenstart’s sweet spot. “We’re specifically looking for companies that could have revenue in 6 to 12 months,” he says. “That is going to rule a lot of things out.”
Companies that have already spent a while working on a machine or a process and merely need help working out problems such as pricing or distribution might be good candidates for the accelerator, Lowe says. But the typical Greenstart company will probably be developing a Web- or software-related product that helps consumers or businesses be more efficient about their energy use, Lowe says.
“The immediate opportunity to lower our carbon footprint is to use less energy,” says Lowe. “There is so much there, in terms of applications that can help consumers monitor their own energy use and see what other people are doing, or help save building owners money. Solar is getting very price competitive, but how do you find installers, how do you qualify for tax rebates on a state or local level? There are lots of opportunities to take friction out of the process of getting energy to your home or office.”
The energy business needs an early-stage startup accelerator because all the same problems that used to plague Internet startups are still present for cleantech entrepreneurs, Lowe says. “If you’re an entrepreneur in technology or the Internet there is this really vibrant ecosystem that exists to help you before you’re ready to raise venture capital,” he observes. “There is a lot taking place that removes some of the friction for entrepreneurs. That really hasn’t fully developed yet among cleantech or greentech companies. So first and foremost we are trying to create an environment that gives these entrepreneurs a better chance of success, through a combination of mentoring and resources and connections and learning how to speak the language of investors and finding the right investors.”
Greenstart plans to copy some, but not all, of the elements found at TechStars, Y Combinator, and other tech incubators, Lowe says. “One problem is that cleantech is much broader than Web applications,” he notes. “If you were going to try to take the exact same model, you would need a solar accelerator and a wind accelerator and a powertrain accelerator and an energy efficiency software accelerator. We are going to try and take what works really well [at other incubators] and understand the different approaches and nuances that need to be taken in different categories.”
Greenstart will be able to work across those categories by assembling a diverse group of advisors with experience in each of these fields, Lowe says. “It means having a different kind of mentor network, being more proficient in our relationships with government and academic organizations, and reaching out to a different set of investors, including strategic investors.”
Lowe has a long history with his Greenstart co-founders Dave Graham and Dillon McDonald: in 1999 Lowe and Graham co-founded an Internet startup called OpenAuto, where McDonald was the first employee. Lowe and McDonald went on to build Jumpstart Automotive Media, an advertising network that forms partnerships with automotive publishers; the company was acquired in 2007 by Hachette Filipachi Media, which is now part of Hearst Corporation.
Lowe freely admits he and his partners have “zero background” in cleantech. This means that unlike Paul Graham at Y Combinator or David Cohen at TechStars, they won’t be able to draw on direct experience when it comes to advising their startups about questions like tailoring a product for a specific corner of the energy market. But Greenstart’s founders do have solid credentials as serial entrepreneurs and investors, and “a lot of the lessons that any early-stage company is going to have to learn are pretty universal,” Lowe says. “They are things like how you hire and raise money and define a product’s scope and prioritize. For the things that are focused in one particular niche, that is where the mentor network comes in.” One of the mentors working with Greenstart, for example, will be Marc Tarpenning, a co-founder of Palo Alto, CA-based electric vehicle manufacturer Tesla Motors.
Greenstart companies will have access to 6,000 square feet of workspace and conference rooms at a building in downtown San Francisco, Lowe says (at Battery and Market Streets, to be specific). Mentors will hold regular office hours, and the incubator will provide additional services such as free assistance with incorporation paperwork from attorneys.
Applications for the fall class are due July 3, and some three dozen teams have sent in materials since Greenstart announced its program a couple of weeks ago, Lowe says.
While energy startups can use the help, the biggest reason to open a cleantech incubator, Lowe says, is simply to boost innovation at a time when the need for technologies that will blunt climate change are more urgent than ever. “If I see one more location-based Web startup or someone trying to get me to check in at Peet’s, my head is going to explode,” Lowe says. “We need to get people focused on a bigger problem. We need to do it and not talk about it. That’s why we are putting our own time and capital into doing this.”