A couple of weeks ago I wrote up a few thoughts on the chatter about government money being directed to cleantech venture capital firms (and then discovered I'd given fodder to the Globe, who knew?).  At the end of the column, I mentioned that I wished to see more government support for cleantech startups at the early end, too early for many venture capital investors.  It prompted some thoughtful replies from several readers. One reader pointed me to Sustainable Development Technology Canada.  This is a non-profit, quasi-governmental corporation that makes direct investments in Canadian cleantech companies to help them in later-stage growth or for initial project development purposes.  It has taken in $1B from the government and has already made investments in 144 projects to date -- they're looking to issue their 15th round of funding later this year.  So here's a model for some to look at, but it doesn't really address that seed-stage gap I pointed to. Another reader reminded me about OnPoint and In-Q-Tel, two government-sponsored firms whose missions are to invest in startups that are developing technologies of interest to the Army and the CIA respectively.  These groups are investing in some early stage opportunities, but also are coming in later stage in some cases as well.  But it's certainly a good model to draw upon for inspiration when it comes to government financing of cleantech. Of course, a couple of people reminded me about the proposals for an "ARPA-E", a counterpart to the Department of Defense's DARPA research grant program.  DARPA is another good tool to consider, and has certainly been the source of grants for a number of cleantech startups.  It's not an investment, however, and so it comes with a very specific set of requirements (and bureaucratic headaches) for the grantee.  It's useful, but no panacea. Finally, Reem Yared wrote to bring up a DOE program that was in place to support seed-stage companies up until a couple of years ago:

In fact, the DOE used to run a program called Inventions and Innovations, where they funded promising clean technologies with grants of $50,000 and $250,000. The grants went to inventors who were still at the patent-filing stage, helping them go through the patent process and on to commercialization. There was a whole selection process which worked quite well. I was one of the consultants hired by the DOE (working for Vista Ventures) to help seven of the start-ups develop their commercialization strategy. Another company was DOE-sponsored market research services. The DOE had enough experience with the program to know that simply funding the research would not be enough: the patents would just be filed and shelved. The inventors/entrepreneurs really did need the hand-holding through the commercialization process. The start-ups I worked with were all over the country and in all different fields: wind, glass manufacturing, paper manufacturing, LP gas distribution, biofuels, car engines, AC pumps. The irony, of course, is that the year Pres. Bush mentioned a focus on cleanTech in his state of the Union address, the administration pulled the plug on the program (April 2007). I don’t think it would take too much effort to restart it, rather than creating something from scratch. See http://www1.eere.energy.gov/inventions/about.html

Government-run investment programs have historically been challenged for a) having unintended consequences like the patent-shelving Reem mentions, and b) not being able to bring on board top investment talent because the government salary structure and even profit-sharing aren't possible.  That latter objection also points to operational challenges -- such simple questions as "are we looking for jobs growth" versus "are we looking for strong investment returns" become pretty fundamental to the exercise. But merging a few of these ideas together, a quasi-governmental, independent corporation sponsored (and funded) by the DOE could be launched, to focus on seed stage companies commercializing technology out of the DOE labs and DOE-funded research.  It wouldn't have to be a huge amount of capital to have a major impact -- a few tens of millions of dollars would be very significant in this context, but relatively small in comparison to the "billions" being discussed by Krugman et al.  Then the questions to be answered around staffing and incentives and compensation would be very similar to those faced by OnPoint and In-Q-Tel, which have been able to bring in experienced, motivated investors.  So no need to reinvent anything at all, we can borrow from what's already working elsewhere. I bet right now we could get some of the brightest investors in the cleantech venture capital world to support this and even join such an effort.

Ah, memories.  Remember way back when I had to devote significant writing on this website to the question of whether there was a bubble in cleantech or not?  And by now, it's starting to look like even my fairly pessimistic 1H09 cleantech venture dollars predictions may have been a bit optimistic, given that Jan-Feb investment totals were on a pace of less than 50% of 2008 annual totals. What we're seeing now is an anti-bubble.  It's across the entire economy, and in fact cleantech appears to be more insulated than many other sectors, but people just aren't putting money out there. In their March 7th issue, The Economist declares: "A share's value must be the present value of all future dividends -- otherwise stockmarkets would be a giant Ponzi scheme."  But that's exactly what has been happening across a wide variety of financial asset classes since the mid-80s.  It was driven by an oversupply of capital, due to a combination of loose monetary policies and the massive exportation of capital by fast-growing Chinese, et al., economies.  We've had 20+ years of one bubble after another in various asset classes, most recently from dot-coms to housing to corporate debt, with only a couple of hiccups along the way. The definition of a Ponzi scheme is one where the fundamental value of what's being invested in is irrelevant -- the only assumption is that the buyer will be able to find another buyer willing to pay even more. With the oversupply of capital we experienced for so long, it had to find places to go, and so we had bubbles where investors weren't paying attention to the underlying fundamental values of the assets they were buying.  Or fooled themselves into believing that "this time it's different".  Whatever.  Basically, to use the stockmarket example cited by The Economist, investors stopped caring about the dividends of stocks.  They just thought someone else would be willing to pay more for the stock later -- why? We started to see a bit of that in some subsectors in cleantech, most notably in solar panel manufacturing and food-based biofuel production.  Why was such-and-such thin-film solar company valued at over a billion dollars pre-money for a private equity round?  Because the investors felt that someone else would be willing to pay even more within a couple of years.  And certainly some of that behavior was also seen in the publicly-traded cleantech shares out there. So these bubbles, including in some cleantech sub-sectors, were the result of too much capital chasing into a "hot" market and getting away from the underlying fundamentals.  And now, we're experiencing the same category of problem but in the opposite direction:  Too little capital is available, and still everyone is getting away from the underlying fundamentals. But in cleantech we really are seeing some tremendous business opportunities.  Technologies at a commercialization stage, targeting big markets with huge unmet needs.  Our global natural resource shortages aren't going away, and while energy prices are temporarily depressed given the severity of the downturn, few expect them to stay low over the long run.  Cleantech startups selling cost-saving technologies still getting good revenue traction.  And of course, a huge influx of government support on the way to anyone with the potential to grow green collar jobs. Yet, right now many cleantech venture investors just aren't putting money out there.  Some are in a bit of maintenance mode, stretching out their existing funds rather than go out to raise a new fund right now.  Others are simply waiting for "the bottom".  And that means I see a lot of strong cleantech companies not getting funding.  Good companies with good revenue growth since their last round, looking at a down round this time.  Startups with capital-efficient business models and compelling customer economics, talking to VCs who say they're looking for capital efficient business models and compelling customer economics, but not getting term sheets. This means there is a strong buying opportunity out there right now in cleantech venture capital.  An opportunity for bold investors with available capital (and discipline and patience) to come in and find great companies to back, with a lot less competition than they would have faced a year ago. Yes, the economy means that some of the fundamentals have changed and deal valuations should be lower.  And yes, high cash burn is now justifiably out of style.  But there are still more great deals available right now than there are deals getting done. So consider this a call-to-arms for the entire cleantech venture community.  Let's get out there, and grow some great businesses.