Quick: name five cleantech companies that have successfully brought technology from the lab to market.

Don't be surprised if you struggle. Some of the best minds in energy innovation at the MIT Energy Conference last week fumbled through that question as well. After some discussion on what defined "success," panelists named Tesla Motors, Nest, First Solar, and lithium-ion battery maker A123 Systems. A123 recently went bankrupt, but at least it now has a new owner selling and integrating its batteries.

The fact that the panelists weren’t able to quickly rattle off several names is telling, said panel moderator Bill Aulet, who teaches energy entrepreneurship at the MIT Sloan School of Management. "Shouldn't we have bigger success stories we can point to?" he asked.

The challenges associated with the first wave of cleantech venture investing in the mid-2000s are well understood. Venture capitalists underestimated the amount of time and capital it would take to introduce new technology to the energy industry, particularly anything that requires manufacturing or other types of production facilities. Another important factor is the massive drop in natural gas prices since 2008, which makes it harder for alternative sources of power generation and efficiency to compete on cost.

Today, many investors and entrepreneurs favor products that can be brought to market in a few years and don't require huge sums of money. Energy efficiency company Opower, for example, has reportedly filed to go public on the success of its software-based business model.

But when it comes to funding science-based technologies, such as a new battery chemistry or solar cell material, all the panelists agreed that the biggest factor for success is patient investors.

"Having the right capital source for the long haul can make or break a company," says Matthew Nordan, managing partner at MNL Partners. Instead of looking to venture capital to bring energy technology to market at scale, people should look to other sources such as family funds, philanthropies, sovereign wealth funds and governments.

A former venture capitalist at Venrock, Nordan recently co-founded MNL Partners to build energy projects in China, where there is both strong demand for energy to fuel economic growth and the political will to build demonstration projects.

By contrast, the demand for grid technology in the U.S. and Western Europe is driven more by a need to replace existing grid infrastructure and make it more resilient and efficient, said Cheryl Martin, acting director of ARPA-E, the federal agency which funds potential breakthrough energy technologies. "Hurricane Sandy significantly -- and I think permanently -- changed the conversation when we saw New York City become a third-world country in three days," she said.

The venture arm of Siemens, for example, is increasingly looking at new software technologies and big data applications that will allow it to identify deficiencies in running the electric grid, said Ayman Fawaz, the venture technologist at Siemens Technology to Business. In general, selling software to utilities is easier than selling a new type of hardware device, because software can more easily be integrated into existing operations.  

Still, some energy startups continue to pursue disruptive energy technologies. Because energy is a commodity business, the price competition is brutal, and startups need to have a truly differentiated product, said Donald Sadoway, an MIT professor who co-founded Ambri, which is making a liquid metal battery. In the case of A123 Systems, its lithium-iron-phosphate battery simply wasn't “better enough” than competitors to be disruptive.

"If you're me-too, you're not going to get there," Sadoway said.

Despite all the challenges, though, the panelists said they remain optimistic. ARPA-E's Martin noted that large strategic investors are more committed to venture funding than in years past, which provides one avenue for scaling up emerging technology. "It doesn't mean it's easy, it doesn't mean it's fast, but I do see strategics' money and, more importantly, time being available to move things forward," she said.

It's less visible than the rush of venture capital that came into energy last decade, but there will be a number of large-scale demonstration projects funded by nonprofit family foundations and other patient investors this year, Nordan said. And for people eager to see small energy companies get to scale, that's good news.

"This period of experimentation will lead us to a new model that is purpose-built for taking these technologies to market," he said. 

Tags: matthew nordan, valley of death, venture capital