Greenstart Targets Cleantech Software Startups in Second Round

The founders of Greenstart, the San Francisco-based venture incubator for cleantech startups, believe a new chapter is opening in the energy business—and they’re changing their program to keep up.

The second class of Greenstart companies arrives today for its 12-week session of product iteration and intensive mentorship. Conspicuously missing from this group are any companies working on energy generation (like Sylvatex, a bio-diesel company that took part in Greenstart’s first session in 2011) or even energy-saving hardware (like SmarterShade, which makes self-tinting windows). That’s because the accelerator has narrowed its focus to startups working at “the intersection of cleantech and IT,” says Greenstart co-founder Mitch Lowe.

In other words, it’s betting on software startups—a move that brings it more into line with local brethren like Y Combinator, 500 Startups, and Rock Health. The five companies selected for Greenstart’s second session are focused on software and services for managing urban commuting; arranging shared transportation; auditing the energy usage of commercial buildings; and controlling the flow of energy in smart-grid environments. (More on each company below.)

The switch at Greenstart isn’t a sign that the search for new sources of renewable, lower-carbon energy is over—far from it. Rather, it’s an acknowledgment of technological and economic realities, Lowe says. Making cheap ethanol from sustainable sources such as high-cellulose feedstock, for example, turns out to be a lot harder than anyone thought—and a lot less lucrative, given the plummeting cost of natural gas. Ditto with advanced solar panels, which are difficult to build (witness Solyndra’s travails) and probably can’t be manufactured domestically as long as Chinese competitors are reaping huge government subsidies.

These days, energy generation is a field that only the largest investors can afford to tackle, Lowe says. “The move for venture capital into cleantech much more aggressively in the 2004-2007 time frame was premature and sort of hopeful, from a policy point of view,” he says. “It doesn’t mean that the development of energy is any less fundamental or important. It’s just going to be a smaller subset of investors who get involved in that.”

Still, there are signs that solar and wind power are getting cheaper—or approaching grid parity, in energy-biz lingo. “The question then becomes, as those sources become more readily available, how do you move the energy around?” says Lowe. “How do you help people send excess energy from their home, car, or business back into the grid? There is a really interesting set of things that are going to happen that are far less dependent on commodity pricing or whether a certain country subsidizes it. It’s less about the development of energy and more about distribution and efficiency.” And those are areas where startups can gain a foothold more quickly.

Lowe says he sees four big areas of opportunity at the intersection of cleantech and infotech:

The smart grid. “This is a trillion dollar market that will have lots of layers, starting with the infrastructure and the pipes and how you move power around, and how it works for home and businesses.”

Buildings. “They are the biggest emitters of carbon, and we have the legacy problem of old buildings around the world. This is both a sensor and a software problem—being able to turn energy usage on and off to make buildings more efficient.”

Transportation. Not biofuels, but “electric vehicles and how they connect to the grid.” Also, “collaborative consumption: getting people to share vehicles.”

Consumer services. “We’re really interested in services that get people to modify their behavior—that help you understand what you are using and change your behavior because of that.”

In each of these areas, Lowe says, there’s a lot of room for pure software innovation, which is obviously cheaper for a small startup than building hardware or doing complex organic chemistry.

He says he’s not arguing that companies like Sylvatex and SmarterShade can’t learn from the accelerator experience—in fact, both of those companies are closing six-figure seed rounds with … Next Page »

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Wade Roush is a contributing editor at Xconomy. Follow @wroush

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