Can clean-tech VCs fund technology breakthroughs?

Money is pouring into clean-technology start-ups, but recent reports examine longer-term issues.

Green tech

Two recent reports raise questions about the long-term impact of the current venture investment boom in clean technologies. Although neither raises any warning signs specifically, they reminded me of the challenges of making clean energy mainstream.

Topline Strategy on Monday published results of an analysis that found venture capitalists steeped in more established industries of life sciences and IT will have a tough go of it in clean tech.

With its heavy emphasis on the energy industry, the clean--or green--tech segment faces numerous challenges, including different financial models and a complex regulatory environment.

A few specialized firms with experiences in energy and materials are well placed but mainstream venture capital firms are still in "learning mode," the Topline Strategy report says.

"Mainstream venture capital investors are interested, but they are moving cautiously as they begin to understand the unique needs of the space," said Jonathan Klein, founder and general partner of Topline, in a statement.

Klein anticipates that there will be a steady buildup of investment, rather than an investment " bubble " as many people have already anticipated.

Meanwhile, a New York Times article published Monday drilled down on solar power--long considered the answer to environmental woes.

The article argued that major breakthroughs in solar power, which will bring dramatically cheaper electricity, are decades away. And the best source of that long-term research and development is government funding.

Indeed, despite all the media coverage around venture investment in clean tech, it is a fraction of the money that corporations and governments spend on research.

According to its definition of clean tech, nanotechnology research company Lux Research found that clean-tech research and funding hit $48 billion in 2006. Government funding was half of that money at $24 billion and corporate spending was $24 billion.

By comparison, venture spending in clean tech, while large and growing, was just over $2 billion.

Does that mean all that money thrown at clean-tech entrepreneurs is misplaced? Not necessarily.

Sure, some companies will fail, but that's the nature of high-risk and potentially high -reward venture investing. And certain more glamorous sectors will draw lots of attention from VCs and get overheated--these days, that's solar and biofuels.

But clean-tech encompasses much more--everything from energy-efficient utility networks to consumer-oriented green home products. And investment money is going to fund companies in all these different niches.

That's a good thing. If there's an area that cries out for innovative technology, energy--and products that promote sustainability, in general--is one of them.

What still remains to be seen, though, is whether VCs are in clean tech for the long haul. And whether the relatively short investment windows they operate in will really let them "do well while doing good."

 

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