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12 Predictions for ‘12

Rob Day: December 28, 2011, 4:52 PM

'Tis the season for making year-end predictions, and even though I'm clearly not very good at it, I got dragged into doing them a while back. So here are some for 2012. Enjoy these with the appropriately sized grain of sodium chloride.

1. Both dollar totals and deal totals for U.S. cleantech venture capital will be up more than 20% over 2011.

I'm basing this on the hope of a bit more economic stabilization, allowing some of the currently fundraising venture funds in the sector to successfully close and start writing checks. Furthermore, more and more corporate and other large investors are putting money directly into venture capital type investments in the sector, and I believe this trend will continue. Also, I think the year will see a bit of a return of Series A and seed investing -- this would in particular boost the overall number of deals. So while I don't see 2012 as some kind of blockbuster positive year for the cleantech sector, I do think, for structural reasons, we'll see deal and dollar totals rise.

2. At least one "brand-name IT entrepreneur" will launch or join a cleantech effort.

One of the most encouraging trends that I see right now is the continued move of successful serial entrepreneurs into the cleantech sector. This shift did slow down a bit over the past couple of years, it feels like, what with the consumer web sector being so hot and the cleantech sector being somewhat out of favor. But even while it has slowed down, it continues. And I think there will be some big-name IT or web entrepreneur who very publicly jumps into this sector in 2012, bringing along a lot of hype into a well-financed play. As the sector matures, it looks more and more possible to figure out a way to be successful as an entrepreneur in these markets. What's more, the de-emphasis on proprietary, engineering-heavy technologies, plus the feel-good nature of many cleantech efforts, will entice entrepreneurs who previously thought there wasn't a play for them in this sector but see it as their next place to make a mark on the world. Hopefully, this will help to build the necessary but missing bridges between the IT/web and cleantech communities overall.

3. There will be at least one additional major syndicate of family offices launched to target cleantech (or a synonymous label for the sector).

One of the pleasant side-effects of publicly launching our Cleantech Syndicate collaboration group this year has been the opportunity to learn about others who have been working toward similar types of efforts. And over the past two and a half years as a family office investor, I've learned that the family office/HNW community is much larger than I'd thought it was, with a lot of latent interest in cleantech and related investments. Plus, outside of this sector, there is a general shift among such investors toward doing more direct investing, as a general rejection of "2 and 20" and as a consequence of the past decade's poor returns provided by VCs to their family office LPs.

All of these factors point to the likely creation of at least one additional such official syndicate of such investors.  In fact I wouldn't be surprised to see more than one get launched.  Such collaborations help family offices and HNWs pool not only their knowledge and dealflow, but also their diligence resources and strategic relationships.

4.  There will be no progress made on U.S. federal energy policy, and there will be a rollback of state-level policy.

The unnecessary politicization of energy policy continues in this country, and not only does this (and an election year) mean it's unlikely we'll see anything meaningful happen in D.C., it also means that there is now an active "swiftboating" effort at the state level -- baseless (or at least greatly exaggerated) attacks on the state-level policies (like the Green Communities Act here in Massachusetts) that have helped the sector weather the storm of incompetence taking place on Capitol Hill. This will get even louder this year, and we'll see more of a rollback of good policies than a continued rollout of good policies. Don't comfort yourselves with the knowledge that such state-level policies have been cost-effective investments for taxpayers. Facts will have no real role in these attacks -- or in their political effects. This will be a year to prepare to fight hard at the state level if you care about energy policy.

5. Significant and visible consolidation within the solar industry will occur.

There is significant overcapacity among solar panel manufacturers right now, and even some inventory dumping, crushing panel ASPs. Some of the results have been a couple of obvious failures among high-profile startups in the sector. And this shakeout will continue, among both dead-ended technology developers and lower-tier manufacturers in places like China. But another result is that it's really cheap to buy a valuable solar manufacturer right now. There are rumors of First Solar being a potential acquisition target. Other next-gen manufacturers like MiaSolé (one of ours, by the way), Nanosolar, Stion and others are already actively in partnership talks with large corporate players and would make natural acquisition targets. Meanwhile, more and more such large corporate players are jumping into the solar sector, as the market continues to grow like crazy. My guess is there will be some high-profile acquisitions in 2012.

6. 2012 will see the emergence of multiple "roll-up" efforts.

With such a wild proliferation of technologies and startups across the various cleantech sectors over the past few years, many are plateauing as they face two major post-commercialization challenges: 1) long sales cycles, as customers don't have the attention or the resources to quickly investigate and decide in the face of all the now-available choices; and 2) low brand equity and small sales/distribution networks. This speaks to a potential wave of acquisitions that I'll talk about momentarily. But it also means that providing various specific customer groups with fuller, more heavily branded, and more complete solutions might make sense.  We've already seen a couple of such roll-up efforts in distributed water treatment, sensors, and lighting.  I'm guessing we'll see a lot more such thinking this coming year, resulting in multiple, visible "roll-up" plays.  Success in these types of efforts is a LOT more easier said than done, so no one tackles them blindly.  But now more than ever sure seems like an opportune time for them.

7. New hybrid investment models will emerge.

"I predicted this for 2010 [and 2011].  It didn't really happen.  But I continue to speak with both LP-backed and non-traditional VCs and PE players who see the need.  So I'll double down for the prediction for 2011 [and now 2012].  And what I'm talking about is the emergence of new models that combine project finance and venture capital; that take innovative approaches to the use of debt and equity combined; and/or investment into the kinds of business models (like services, etc.) that VCs have typically had a hard time backing."

I took the above excerpt directly from last year's prediction column. Never wrong, but often early, right?

8. 2012 will see a big wave of corporate M&A in the cleantech sector.

I've never seen more interest among large corporate players in driving topline growth through clean technologies. Thus, there's been a wave of announced partnerships between Fortune 1000 companies and cleantech startups. This will continue, but with valuations depressed and the variety of available choices making for a buyer's market, a wave of acquisitions should be expected. In fact, it may have already started in 2011.

Lighting, biofuels, solar, and building energy intelligence are all sectors where we might see a buying spree in 2012. Large corporates also appear to have keen interest in sectors like energy storage and transportation and water, but I'm not sure those sectors have enough mature venture-backed startups of sufficient interest to corporate buyers as to result in a major wave of acquisitions -- those would come later.

Note that I'm not predicting anything about how lucrative such a wave of M&A would be for venture investors' portfolios. 

9. A major geopolitical event will spike oil prices above $120/barrel.

I predicted this last year as well, and sure enough, we had spikes because of geopolitical events, but in the end, the macroeconomic blues held down prices below $120/barrel for the entire year. As noted, I'm hopeful of at least some economic stabilization in 2012. On the basis of that hope, I'm willing to continue to bet on major price volatility for oil, one of the world's tightest and most easily manipulated markets. Until we finally figure out how damaging it is to our economy that we allow ourselves to be dependent upon such a headline-risk input, and start to wean ourselves off of Middle Eastern oil through smart policy and long-term capex decisions, markets will continue to be near-term price-inelastic and thus we will continue to see spikes whenever some crackpot somewhere around the world decides to make a stink.

If China's economic expansion loses significant steam, or Europe fumbles and causes a global recession, this prediction will be wrong. But given even a halfway-decent economy in 2012, such volatility seems pretty inevitable. To borrow from Rick James, "Oil is a hell of a drug."

10. Several "environmental markets" will collapse and shut down.

In many markets around the world, prices of carbon credits and renewable energy credits are collapsing.  This is mostly due to the overall economic situation, which not only means less capital is sloshing around looking for innovative new bets to play, it also means many targeted emissions reductions are being met simply because of lower levels of production overall. Further, it reflects that many of these markets were established with prices intentionally set low at the beginning, and, increasingly, a lack of faith that policymakers will continue to let such markets exist and run as promised. One of the many ways reactionary politics creates uncertainty, which kills businesses.

In any case, with prices collapsing, we're already seeing some such markets closing down altogether. I expect this to continue in 2012.  I am a believer in the emergence of such environmental markets over the long run -- but right now is their winter.

11. There will be an overall pullback in non-U.S. cleantech venture capital deal counts, but an increase in project finance.

With so many choices to pick from domestically, and also with less faith in the consistent, near-term growth of some emerging economies, I'm hearing fewer U.S. venture investors talk about their latest overseas investments. What's more, the U.S. continues to dominate the venture capital industry. Further, economic uncertainty in Europe is also stagnating interest in risky venture capital bets there. My pure guess is that 2012 will see a temporary pullback in non-U.S. cleantech venture capital deal counts. But meanwhile, as cleantech equipment prices get crushed, renewable energy projects pencil out better and better, even in places without generous subsidies or FITs. Project finance is low-risk and long-term, and clearly in demand. So I feel pretty confident that we'll see a continued strong growth in overseas cleantech project finance -- albeit with some likely significant shifts from some regions into others.

12. The Redskins will have a losing record next season.

It pains me to say it, as I think they actually made some good progress this year. But next year they'll probably be starting a rookie QB, and there's no way the rest of the NFC East can continue to be so lousy next year. Plus, it looks like they'll have to face primarily the AFC North and the NFC South in non-divisional matchups, which were two of the strongest divisions this season. So I'm guessing my football frustrations will continue, even if I see them improving next year in terms of quality. Here's to the 2013-14 season, I guess.

Looking Back on 2011 Cleantech Investing Predictions

Rob Day: December 27, 2011, 2:30 PM

It's been a tumultuous year for a whole lot of folks, and the cleantech market has been no exception. As we near the end of 2011, I thought it would be good to look back on how our predictions from a year ago turned out.  

Here's what I predicted last December:

1. The cleantech venture capital shakeout will become more obvious.

I'd say this has been true. At least to entrepreneurs seeking financing, especially early stage. A few of us in Boston were recently trying to figure out who's still actively investing in the sector in this region -- and it was a shockingly short list. I suspect the same is true in other regions as well.  Score: +1.

2. 2011 will be the Year of Energy Storage.

Turns out this was pretty correct. Energy efficiency still showed a lot of dealflow, solar continued to get a lot of dollars, but energy storage rose up to challenge both subsectors. Seems like this will be a longer-term trend as well, given all the companies at an early stage that have taken in funding over the past couple of years -- and are likely to be taking in even more dollars in the future.  Score: +1.

I said the runner-up subsector would be LED lighting. Anecdotally speaking, feels like this was also about right. It's a hot sector that looks set to continue to heat up (no pun intended).

3. 2011 will be a moderately up year for cleantech venture dollars and valuations.

The dollars prediction was about right, at least through Q3, and I'm guessing Q4 will also be an up quarter when we see those numbers. The valuations prediction was very wrong, however. Tough to find data on this, but I've met with a lot of entrepreneurs who've talked about there being significant valuation downward pressure these days. Half credit only on this one. Score: +1/2.

4. A major geopolitical event will spike oil prices above $120/barrel.  

Nope, wrong. But that's because the global economy remained so bad. Certainly we had plenty of geopolitical excuses for oil price spikes this year. Score: +0.

5. There will be an energy law passed in the U.S., but it will be very patchy and incomplete.

Nope, not even that. The frustration continues. Score: +0.

6. A couple of big venture-backed cleantech IPOs (valued over $1.5B) will happen, but still no blockbusters.

Not so much. The cleantech S-1 backlog continues to grow. Score: +0.

7. Family offices and other non-traditional investors will become a critical source of funding for cleantech private equity.

This has turned out to be pretty correct. But while family offices have indeed stepped up with more activity and visibility, the true non-traditional investor "heroes" filling the capital gap have been corporate investors.  Score: +1.

8. New hybrid investment models will emerge.

Here's what I wrote last year: "I predicted this for 2010. It didn't really happen. But I continue to speak with both LP-backed and non-traditional VCs and PE players who see the need. So I'll double down for the prediction for 2011. And what I'm talking about is the emergence of new models that combine project finance and venture capital; that take innovative approaches to the use of debt and equity combined; and/or investment into the kinds of business models (like services, etc.) that VCs have typically had a hard time backing." Ditto this year. In particular, at my firm, we have started doing this, but nevertheless, it didn't really happen as a broad sectoral trend. Score: +0.

9. "Tech-enabled services" will be the new hot buzzword among cleantech VCs.

At the time, I noted that I shouldn't be predicting buzzwords, but that what I was really predicting was a rise of investor interest in alternative business and investment models in the sector that weren't dependent upon proprietary technology.  And given the rise of activity in IT-based cleantech plays, including the emergence of Sunil Paul's 'Cleanweb' model, I think I was essentially correct. And this trend will continue.  But no, I shouldn't predict buzzwords.  Score: +1.

10. Among U.S.-based cleantech venture investors, they will devote relatively more dollars to international investments.

I haven't seen a lot of data around this, so it's hard to say. But I haven't seen a lot of evidence of it, myself -- so let's put it in the "wrong" category.  Score: +0.

11.  The Washington Redskins will have a winning record.

D'oh. Score: +0.


So looking it all over, a mixed bag of predictions. In such a chaotic year, that's not too surprising, but still: I scored only 4.5 out of 11. Where I missed, it was mostly by being too optimistic. I'll try to do better later this week when I post predictions for 2012.

Congrats on surviving 2011, everyone.  And thanks for reading and for reaching out with your comments and feedback.  That's why I do this: to learn.  It's clearly not to demonstrate superior prognostication skills!

Quick Hits: Boston’s Super-Angels, Nordan’s Smart Thoughts, and More

Rob Day: December 15, 2011, 9:06 AM

Been caught up in a number of year-end projects and thus am way behind on topics I've wanted to write about, so here's a quick set of thoughts on a few unrelated topics, Peter King "Monday Morning Quarterback" style:


Had dinner last night with several of Boston's most active cleantech angel investors (thanks to Bic Stevens for the invite).  No, none of this went on -- just some thought-provoking conversation over a great Italian meal. One thing that struck me, though, was hearing that Boston-area cleantech VCs are now doing only around three or four Series A rounds per year, and yet at that table were angels who had done eight and six deals over the past year themselves.  

This tells me that for cleantech entrepreneurs in this region (and I suspect it's the same elsewhere), angel funding is now the new-normal way to get started. A few cleantech startups here will take in VC dollars as their first dollars, but many more will have to make significant progress on smaller amounts of money before the VCs will jump in with their multimillion-dollar checks. I suspect this is doubly true for first-time entrepreneurs, as opposed to entrepreneurs who've already got a relationship with a VC or three.

So for emerging entrepreneurs out there, don't automatically build a plan/pitch requiring a $5M or even $2M Series A to get started. Have at least an alternative plan in your back pocket that allows you to make progress with $250k to $500k. And start figuring out how you can network your way into the local angel community.  

That isn't as easy as it should be, despite the good efforts of Bic and others like him. So one takeaway for me is that we need to work even harder to make the Cleantech Open Northeast a venue for regional entrepreneurs and angels to get to know each other.


Matthew Nordan is one of my favorite cleantech VCs, not least because he's "wicked smaht," as they say around here.  If you haven't read his recent four-part evaluation of the current state of cleantech investing, do so.  

I find myself largely in agreement with Matthew's points, and in fact have already stolen a couple of his charts for various purposes. So rather than go through the entire four-part series in detail with just a lot of "amens" from me, here are some quick thoughts and reactions, for what they're worth:

1. This is one of the better illustrations of the decline in early-stage cleantech investing I've seen. It basically shows that Seed/Series A activity has fallen off by about half -- driven, of course, by the general retrenchment of cleantech venture capital and exacerbated by the continued shift to later-stage investing by VCs. Angels and even corporates are filling that void somewhat, so the picture must look even more dire for cleantech venture capital firms.  The pendulum may be starting to shift back, but still -- it's striking.

2. I disagree with the illustrations by Matthew and others that extrapolate past patterns of capital needs to project future capital needs into later-stage investments in the sector and say there's a huge gap. I understand the logic of it, and it may end up being right. But we're seeing a real shift in the industry. Fewer of the early-stage companies will "graduate," and in some cases rightfully so. Just because all those companies will continue to burn cash, doesn't mean investors should continue to feed them more cash. I'm already seeing a decline in the number and amount of follow-on deals and dollars VCs are willing to put into their companies, except in the case of clear winners -- "pruning the tree" is happening more strictly and earlier in VC portfolios, somewhat out of necessity. Plus, there's a definite shift away from capital-intensive investing in the sector. So while Matthew's basic point is still right -- even as the VCs shift to later stages, there's still going to be yet more need for later-stage capital -- I disagree that it will happen nearly to the extent projected here. Matthew and others who do this type of projection essentially send an implied message: "Hey, there's lots of need for later-stage funding; jump in and fund a fab!" I would tell investors, "Hey, be really careful about being the 100th institutional investor to jump into late-stage cleantech investing, and be especially careful about funding construction of a fab and expecting venture-type returns." There is room for both perspectives alongside each other.

3. Matthew compellingly illustrates that cleantech venture returns haven't underperformed returns for the entire industry, that there's no "cleantech returns gap."  I agree.  But what I really take away from his analysis is that venture returns have sucked across all categories, cleantech and non-cleantech. I don't find the cleantech fund returns he describes to be particularly compelling, as a group. The median IRR in that group he shows is negative.  And yes, that's on par with VC returns across all sectors over the past decade. Still, I wouldn't want to back an index of cleantech venture funds based upon this performance -- and that's essentially how many of the bigger LPs out there will view the question.

4. Matthew's breakdown of the three trajectories is very well done.  In fact, it resonates with a similar analysis I did a couple of years ago that showed even more starkly that "last money in before the exit" rounds have rarely led directly to the anticipated exits, thus necessitating further funding, presumably often at down valuations. Common-holders, even founders who are still in the management team, can be the most hurt in such instances, as the preferred investors have various protections and options available for reducing their pain in down rounds.  And angels and founders no longer in the senior management team get crushed. Of course, in this scenario it's quite common for founders to no longer be part of the management team after that happens. So I think the real lesson learned here is that founders and angels need to be more wary of big upround valuations when times are good. Yes, dilution is a concern, and rightfully so, and so I wouldn't argue for artificially holding down valuations, either. But run really, really lean (i.e., smaller rounds needed) and don't over-hype your company. Because if you raise a really big round at an unwarranted valuation, there will be really big and probably unrealistic expectations -- and you will get crushed when they aren't met. At least, that's how I would think about it were I in their shoes.

Great work by Matthew. Thanks to him for doing this and putting it out there.


I think this is one of the most exciting times in cleantech venture investing that I've ever been a part of. Yes, there are some scary things lurking out there. But while we're seeing the "dabblers" back out of the sector, those investors and entrepreneurs still active in it are really committed to it. And at the same time, I'm seeing a next wave of investors like Nordan and Rachel Sheinbein who are willing to re-examine even core and hard-held assumptions about how cleantech venture capital should be done: in some cases (like Rachel) to re-affirm the existing model, sure, but it's still really healthy and energizing to see the examination being done at all.  

And the dealflow has never been healthier, at least from my perspective.  It's a great time to be investing.

Plus, I really do feel like we're on the verge of a wave of market reinvention that could finally unlock all the value created during the last decade's worth of technology reinvention. If we can finally start to see entrepreneurs introduce new channels and new business models out there, that could unleash a huge amount of latent growth for the sector.


The federal government is incompetent and absent on energy policy, but the states have been stepping into the void.  I continue to hear about interesting new policies and programs being implemented at the state level to encourage implementation of clean technologies, even in states you wouldn't think of as being particularly "green" leaning.

But what I'm also starting to see is a wave of attacks at the state level against these policies. There's some real "swiftboating" going on right now, even in states like Massachusetts that have been among the most solid leaders over the past few years -- misinformation campaigns and thinly veiled partisan attacks.

Watch this trend carefully.  


I'm headed to the Greentech Media holiday party tonight.  Seems a good excuse to thank them for continuing to put up with my shenanigans and for being a great partner over the past few years.  Thanks, guys -- looking forward to sharing a cup of cheer tonight!