The Rules in Cleantech

I’ve now been asked enough times, that at the risk of destroying what little edge Jane Capital may have in cleantech, I finally got around to blogging our “Rules” in cleantech investing and business in general. Hopefully it will stimulate some good debate.

One of the things that makes cleantech different from other investing areas, is the best practice rules are the opposite of what the best investors have grown up with. Maybe that’s because cleantech IS energy and energy IS different.

Here is our version of the Rules:

  1. Energy is slow and big – Energy technology R&D and commercialization time frames are longer and costs higher
  2. Technology is “cheap”, the scale up is where all the risk is
  3. There is no disruptive technology in energy, only disruptive policies and resource shocks that make certain technologies look disruptive after the fact – aka, “it’s the policies (and subsidies), stupid”
  4. At scale, there is no capital efficient investing in energy
  5. Commodity prices and policy tend to be more important variables than technology and management
  6. Energy is at heart a resource play, the price you pay matters more than what you do with the resource

As a result we’ve worked out a strategic playbook:

  1. Look for mature technologies – if it’s not 10 year old technology, don’t touch it.
    Limit scale up risk and look for technology with few dependencies for scale
  2. Embrace policy – solid policy frameworks are much better bets than great technologies. In fact, most of the serious money in cleantech has been made by being in the right place when the policies or subsidies hit critical mass, not by developing technologies after the fact.
  3. Expect lower exit multiples, and target lower burn rates over a longer commercialization time as a result
  4. Discipline wins. Think Stage Gate and SPC instead of venture style “massively parallel” R&D commercialization strategies
  5. Don’t be afraid to play a diversified investment strategy
  6. Don’t ignore Acquisition & Development as a viable growth strategy
  7. Don’t be afraid of good low tech deals, that’s where many the cleantech hits have been (if we haven’t heard “that’s not a venture bet” 3 times, we tend to stay away.)
  8. “Powder dry approach” – deploy limited capital early on for larger stakes and focus on returning capital quickly, not rapidly deploying capital
  9. Secure vastly superior market intelligence before moving – stealth is pretty much a worthless strategy, you’re too likely to miss key things that way.

And I thought I’d share a few paraphrased quotes told to me over the years that have helped bring these thoughts home:

A former boss, now an executive at a major utility – “the only thing that matters to the bottom line of the company are the rate cases in front of us. Nothing else we can do with customers, finance, or technology will make a difference if those don’t go well.”

A former head of oil company venture fund on why it takes so long to get technology into the energy sector – “we figure we are taking enough risk just letting a vendor touch our $1 billion platform.”

My father in law, a long time refinery engineer and manager on what small scale means in energy – “let me take you on a refinery tour during a turnaround sometime and show you what half a billion looks like lying on the ground.” Corollary, “you can’t do anything serious at a refinery for less than $100 mm.”

Electrochemist and long time fuel cell researcher on the challenges of making a FC last – “if you could perfectly control humidity and temperature, a PEMFC will run forever.” He was pointing out that it’s much easier said than done.

Energy company technology head – “I don’t want to see the business plan, just show me the energy balance and the engineering behind it, and the data backing it up.”

I’d welcome other people’s thoughts on investing in cleantech and energy technology. So comment away.

Neal Dikeman is a partner at Jane Capital Partners, and has cofounded, run, invested in, or served as a director of multiple startups in cleantech and technology. He is Chairman of Carbonflow and, and Texas Aggie.

6 replies
  1. Mark Henwood
    Mark Henwood says:

    Energy is about physics, chemistry, and thermodynamics…so Neal has it right, there is no obvious disruptive technology breakthrough on the horizon. Consumers en mass care about what energy can do for them and how conveniently, not about the cool technology. So if the cleantech isn’t better (and usually significantly better) than what a consumer already has the technology is an investment “dry hole”. How many “dry holes” of the last 9 years can you name? I’ve got five in five seconds. So policy props up the price and occasionally leads to the maturation of a technology to where it is competitive. Wind is the best example. Started in California in the early 80’s fed by good market prices and generous federal and state tax policies a bunch of first generation machines got built. They weren’t very good but they have ultimately lead to the most successful “new” renewable technology. If you’re going to invest in cleantech keep your eye on policy. If governments pull back from solar your KWT investment is going down the tubes.Investing in cleantech isn’t for the faint of heart. At Camino ( I have been computing some key indices for over three years and clean tech has proven to be significantly more volatile then broad markets.And whether it delivers alpha for you (or not) will require at least deep research on your part.

  2. servant74
    servant74 says:

    To be 'safe', invest when it is a good financial decision, without rebates, deals, or subsidies. Then with them if they are there, it is a better deal. But without, you can still make money.Customers care about the environment, but they care more about their pocket book. So unless you can get their buy in, the project doesn't matter.In summary, we need clean energy, but customers need it to be fiscally sound to save them money and pay appropriately for the investment over the investment lifetime.

  3. Daniel
    Daniel says:

    Maybe the answer is embedded in Tip 7., but how much of an improvement (% of cost) does a technology require over existing tech to yield successful investment returns?

  4. Neil Farbstein
    Neil Farbstein says:

    Hi Neal; This an interesting blog.Who is the energy compnay director with the pragmatic engineering approach you are telling us about? Poeple like him are exactly the type I like dealing with. I have applied for a a patent on the solar energy system I have discussed in blogs here before. In a few weeks it will have patent pending status. Can you tell me his name and his company. My company is seeking partnerships to develop it jointly. Some will call it a disurptive invention since it will double the amount of energy produced by a field of CSP solar collectors such as power towers, yet it is not a quantum leap in technology, it is something that can be developed in a couple of years given enough money.

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