For many observers, the bloom is off cleantech venture investing. The challenges are numerous and increasingly well-known: capital requirements are too large, the non-market (i.e., regulatory/political) forces are too influential, the incumbents are too strong, the sales cycles among risk-averse customers are too long, the technological issues are too profound.
As reported in this posting, this negative view of cleantech venture capital is held especially strongly by Peter Thiel, one of the early principals of PayPal and a highly-influential voice within the capital markets and financial community — especially in Silicon Valley.
Oh, for the glory days of venture investing! Where in cleantech is the next Google, Yahoo, Facebook, Microsoft, LinkedIn, Amazon? Anyone, anyone? Bueller? Bueller?
A nascent movement is growing in response to this queasy inquiry. At the center of this movement is “CleanWeb”, which focuses on the ability to harness the ever-expanding powers of intelligence for greater efficiency in physical resource management. At the center of the CleanWeb phenomenon is Sunil Paul, the founder of Spring Ventures and a co-founder of the IT company Brightmail, which was eventually acquired by Symantec for the tidy sum of $370 million.
As Sunil and his Spring Ventures partner Nick Allen argue in this article from a recent issue of Technology Review, many of the enabling physical sciences discoveries to significantly change for the better our energy production and consumption have already been achieved. “What hampers [them] now is poor sales channels, complex financing and incentives, and a failure to communicate with customers. That makes them ripe for disruption by the application of IT, which will drive the next phase of cost reduction and implementation.”
More good news: as Stanford Professor Jonathan Koomey argues in another article in the same issue of Technology Review, there’s a lot of remaining untapped upside potential in the CleanWeb. Koomey writes that, according to some calculations by the crazy-genius physicist Richard Feynman, the energy efficiency of computing theoretically could improve by at least four more orders of magnitude from today’s levels, and it appears that the trajectory of improvement is a factor of 100 every decade. So, we’ve got a long way to go.
Or, put another way, as Koomey does: today, the world’s most powerful computer (the 10.5 petaflop Fujitsu K) consumes a whopping 12.7 megawatts — an entire town’s worth of power — but a similarly capable machine two decades from now would consume as much electricity as a standard household toaster. If you doubt that this degree of improvement can be achieved in 20 years, Koomey notes that today’s MacBook Air — if operated at the efficiency of 1991 computers — would fully discharge its battery in merely 2.5 seconds.
Sunil, Nick and their confederates have been organizing a series of regional CleanWeb Hackathons, bringing together information technology professionals to develop new code for “optimizing resource use and accelerating cleantech development.” The first hackathon in (you guessed it) San Francisco last September was said in this article by GigaOM to have drawn 100 participants and resulted in 14 cleanweb applications.
The space of CleanWeb is pretty broad. In our venture capital firm, Early Stage Partners, we’re seeing an increasing number of software-based business plans that – whether directly or tangentially – result in lower consumption of energy, and correspondingly lower emissions. You could call any of these “CleanWeb”.
One of ESP’s portfolio companies — Cleveland-based LineStream Technologies, spun-out from Cleveland State University by licensing the control systems innovations developed by Professor Zhiqiang Gao — clearly fits the CleanWeb category, as its proprietary algorithms enable much better management of both industrial and consumer applications. This improved management usually results in lower energy consumption, and the reduction in energy consumption translates to lower costs, which is virtually always a good thing for prospective users. The environmental benefits of lower energy consumption are nice, but incidental.
These CleanWeb business models often aren’t subject to the litany of challenges listed at the outset of this posting: capital-intensity, regulatory impediments, incumbent opposition, long sales-cycles, or challenging physical innovations. Accordingly, they may be relatively well-suited to venture capital investment approaches – more so than pushing for the next breakthrough in batteries, solar energy, fuel cells, wind, biofuels, nuclear or other cleantech sector involving a physical discipline.
A complaint leveled by some observers — such as in the closing paragraphs of this report by one of my favorite cleantech writers, Eric Wesoff of GreenTechMedia, on Thiel’s diatribe against cleantech venture capital — implies that CleanWeb investors are too wimpy. The thinking seems to go that venture capital practices developed from investing in software start-ups just can’t handle the big/tough but necessary challenges of cleantech. The CleanWeb innovations on which such investors are focusing, while nice, may be just “cherry-picking”, and not truly transformative.
Perhaps. However, I would argue that the primary role of private capital is to make good returns, period. Most investors don’t place their money in the hands of others (i.e., venture capital firms) to effectuate social change, no matter how desirable such change might be. Venture capitalists can’t afford to break their picks fighting fights that they can’t win, or would have to spend inordinate amounts of capital in order to win.
Those battles need to be fought not by investors but rather by participants in the arenas of politics and laws. Those battles set the rules of the game, within which investors and competitive market actors subsequently play.
In my view, the rules of the game are in many ways stacked against those of us active in cleantech, and it is entirely appropriate to seek — in a fair and just manner — to change those rules. But, it is unreasonable to expect professional investors to deploy capital imprudently, flying in the face of unfavorable rules.
And, it is unreasonable to expect professional investors to be able to dedicate more than a modest portion of their time or effort in the public debates. Their investments, and their investors, properly demand the majority of their attention.
In contrast to many investment opportunities in energy supply or storage technologies, CleanWeb faces minimal headwinds. It may well be lamentable that renewable energy faces stiff headwinds, some of which may stem from outdated or inequitable rules, but that sentiment doesn’t change the harsh realities.
Virtuality does have its virtues.