The Massachusetts Technology Collaborative released a fascinating survey of the local clean energy economy this past week (
click here to go to their home page, where you can download a press release and the full report).
The "Clean Energy Census Report 2007" illustrates the importance of the clean energy industry to the local economy, with over 14,000 workers already employed by the industry, and with industry-wide growth rates far exceeding those of other top local economic sectors. They track 116 local clean energy companies that have been founded since 2001, and as a sign of the entrepreneurial nature of the industry, they found that over half of the 556 local clean energy companies tracked have less than 5 employees.
There's also some evidence of what some local cleantech investors have anecdotally pointed to as a surprising relative lack of investment opportunities in the area, given all of the world-class energy- and water-tech research that is being done locally. To be clear, it's not that the region lacks for cleantech entrepreneurial activity -- in addition to the MTC data above, the Cleantech Venture Network's Q1 2007 figures show that 14 out of 64 (22%) North American cleantech deals tracked that quarter were in the Northeast, for over $120mm in funding (17% of the total). But the sense is that, given all the local expertise and research, there should be even MORE activity. Even though the MTC tracked 116 clean energy companies formed since 2001, that's still less than 20 companies a year.
The MTC data points to a few potential chokepoints:
- The report suggests that local cleantech companies' focus on local revenues is a potential hindrance. Indeed, out of about $165mm in tracked clean energy company revenue (itself a relatively low figure), $69mm of that was derived from Massachusetts customers. Less than $7mm was in exported products overseas. Exports are an indication of regional competitiveness, and export assistance is often an important policy driver for regional economic growth.
- Furthermore, many of the companies tracked by the report are very small -- 105 out of 173 companies that shared their revenues had less than $1mm. This is both encouraging and challenging. It's encouraging that there are so many early-stage startups, but as with the point about local revenue above, it points to the "chicken and egg" problem that a local clean energy ecosystem needs to somehow get jump-started. Because clean energy companies will sell to other clean energy companies, and partner with other clean energy companies. As happened with IT and software and biotech and other sectors, you need some of these companies to grow to a big enough scale that they can support the development of their vendors and partners.
- The report didn't break out type of company other than to bucket them across the categories of Renewable Energy (generation techs like solar, etc.), Energy Efficiency, Consulting and Support (legal services, etc.), and University Research. What isn't clear is what portion of these entities are actually developing technologies and products, which are installers and other service companies, and which are project developers. That's a difficult categorization challenge, but it's important from a venture capital perspective, since technology and product development tend to lend themselves to that capital category much more easily than services and project development. It would be very interesting to try to compare relative levels of tech/product development enterprises for Massachusetts versus California.
- For whatever reason, only a small portion of clean energy startups in the region are receiving venture capital financing. Venture capital is always only a small portion of the overall financing sources for startups in any case. But it's notable that less than 10% of the companies that shared their source of financing in the MTC report described it as "venture capital". It's hard to tell if this is a symptom or a cause...
- Perhaps most tellingly, federal support for Massachusetts clean energy companies appears to be very low. Only 14% of startups listed "grants" as their primary source of startup financing, and it's unclear how much if any of these grants were from federal sources. And only $3mm in revenue (out of the $165mm) was identified as coming from Washington DC or the Federal Government. Given all the world-class research being done here, these seem to be awfully low figures.
- While the Massachusetts state government has been actively working to fix the perception that the state hasn't been supportive of the local clean energy industry, it still should be noted that a plurality of respondents both in this report and in the 2004 "Creating the California Cleantech Cluster" report indicated that California is the most supportive/ attractive region for clean energy businesses, with Mass only a distant second.
Taken together, the MTC report findings are reason for a lot of optimism about the local clean energy cluster. But they also paint a picture of a somewhat insular clean energy industry that hasn't historically been as supported by local government initiatives, and particularly by the federal government, as it could have been. And the smallish size of revenues overall could suggest that a lot of whatever is being developed isn't being adopted by the marketplace.
This last point is the lament of local clean energy pundit Bill Aulet, who wrote
a thoughtful column recently for
Xconomy.com suggesting that a big problem for the local clean energy economy is the focus on developing very future-looking renewable energy technologies without big markets today (he describes it as "majoring in minors"), instead of developing incremental improvements on today's energy technologies. The column has prompted a lot of thoughtful comments on the Xconomy.com site that are also worth reading. (Also: hat tip to Wade Roush of Xconomy, and to Bill, for pointing to the MTC report and bringing this topic to my attention)
Any question about whether we need one or the other type of technology development misses the point -- we need BOTH. And more of it. Bill's replies to the commenters indicates he agrees.
For myself, as a recent transplant to Massachusetts from San Francisco, the major difference appears to be in the pool of ready entrepreneurs. Namely, that in Massachusetts there don't seem to be as many entrepreneurs out of IT and other sectors that are re-purposing themselves to make cleantech their next big thing. That kind of dynamic has been critical to the recent upswing of cleantech startup activity in California, because it has driven a very rapid infusion of proven startup managerial talent into the industry.
There aren't any surveys or other hard data to make this point, but there's one telling piece of anecdotal evidence: The California
Renewable Energy Business Network (REBN) events of last year were full of IT entrepreneurs who came to the events to try to network and learn and position themselves to jump into a new effort in the space. The
REBN-East events we have held this year in the Boston area have had even more interest and higher attendance -- but the crowd has been mostly businesspeople already involved in cleantech, and a whole lot of venture investors.
So in other words, the biggest takeaway from the MTC report and from other anecdotal evidence is clear: If you are a pragmatic New England entrepreneur or proven business grower with an interest in cleantech, now's your best chance to get into the sector. The local governments are looking for excuses to support l
ocal efforts. Much of that local world-class research is available for technology transfers into startups, with university professionals eager to help find productive homes for the innovations, targeting both future-looking and near-term markets. The regional industry is poised for a rapid growth period. And we check-writers are eager, ready and willing...
8/13 update: I've already had a few Massachusetts-area entrepreneurs ping me to try to get some ideas as to how to get started... Here are a few links that should be useful (other submissions are welcomed as well, just shoot me an email and I'll try to keep this page fresh):
Networking:
- The Renewable Energy Business Network (REBN) has been pulling together informal networking events for renewable energy researchers, businesspeople, and those who want to make the connection between the two... Join the listserv at the group website to learn about future events, and from the website you can also join the LinkedIn group for making direct connections with possible business partners.
Tech transfer sites:
Other suggestions are welcome!
