New Finance Models For NW Cleantech, Sustainability As VC Wanes

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“a period of over-investment before things find the right equilibrium, and we’ve certainly been through that,” he says.

With its hefty capital requirements, low margins (in energy particularly), well-funded incumbents, and conservative utility customers, cleantech is not a great fit for the early 21st century venture capital model. The poor track record of many cleantech investments over the last half-decade, and the well-documented challenges facing the sector now, have prompted many large venture firms to back away from cleantech. For those that remain engaged in the sector, “it’s more difficult to syndicate [cleantech] investments currently,” Washington says.

Kirk Washington

Brian Carey, PwC’s US cleantech advisory leader, says those firms continuing to invest in cleantech have become more selective.

“I don’t think you’re going to see as many venture capital investments in early-stage, capital-intensive companies, just because it takes too long for VCs to get a return on their investment and an exit from some of those types of companies,” he says.

Some entrepreneurs have followed the money out of cleantech.

Like many others, Nikesh (Niki) Parekh wanted to do well by doing good. He traded in a career in tech in 2007, becoming chief executive of venture-backed Bio Architecture Lab, focused on making biofuels from seaweed. After a good run, he left in 2010, and is now an executive vice president at Market Leader, a real estate software and services company.

“There were all these entrepreneurs who basically transitioned from tech to clean tech because they heard a rallying cry of clean energy from both the venture capital community and from Washington, D.C.,” Parekh says.

Parekh’s story is common. At a holiday party he attended on Sand Hill Road late last year, the room was filled with “cleantech refugees,” he says.

Cascadia’s Butler and others argue that the action now is in industries adjacent to cleantech that might be thought of as cleaner tech—meaning natural gas, the newly abundant fossil fuel that has upended the energy market in the last three years—and a broad, somewhat amorphous category called sustainability, which can include anything that moves business processes and supply chains toward improved efficiency and lighter environmental impacts, as well as economic sustainability.

The easy-to-spot examples locally include “green IT” companies, such as Verdiem; industrial energy management technology providers like Powerit Solutions; and an array of building energy efficiency contractors and service providers led by McKinstry.

Butler also points to World CNG, the Kent, WA, company doing natural gas vehicle conversions, and Seattle’s Zonar Systems, which does electronic fleet tracking and management. “You wouldn’t necessarily think about it as cleantech, but it certainly is sustainability—making operations more efficient,” Butler argues.

He says there’s “plenty of growth equity” available for more mature companies such as these.

But where can early-stage companies in cleantech and sustainability look for capital? … Next Page »

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Benjamin Romano is editor of Xconomy Seattle. Email him at bromano [at] Follow @bromano

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