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How the Heck Did We Get Here?

Rob Day: March 8, 2012, 2:09 PM

Over the next few columns I’m going to talk about what I see as a critical set of lessons and paths forward for cleantech venture capital. But first, I thought it would be necessary to set the table by laying out my own vastly oversimplified version of how cleantech venture capital got to this point.

Where to begin? In the 1990s, there were a very few venture investors tackling alternative energy and environmental technologies. They had small funds and invested mostly in hardware plays of some kind. Sectors like solar and electric vehicles certainly didn’t dominate.

Then the dot-com bubble and IPO frenzy happened. This rising tide lifted a lot of boats, including in this sector. There was a one-year spike of venture investments by generalist firms into what would later be termed “cleantech." As the issue of global warming gained attention, and as hype built around technologies like microturbines and fuel cells, it became possible for some rather early-stage companies with high-cost devices and systems to IPO on the basis of some beta sales and a lot of loose talk about big company adoption and such. I still have some of the presentations from that period where the near-term inevitability of a distributed generation future was posited, and I still remember thinking that, as shares of Ballard Power dropped from over $100 to $20, it might be a good opportunity to buy into the hydrogen-fueled future (oops). When I review a presentation I pulled together in 2001 on the future of alternative energy technologies, it’s… entertaining.

This period was very formative for a lot of investors. It established the expectation that the public would welcome IPOs from companies with a compelling vision of a changed energy future. It locked in the perception that the most value in this sector would be generated by innovative hardware solutions. And the collapse of many of these companies also taught investors that costs and customer economics do matter. And that many of these technologies were therefore not ready for prime time.

In the early 2000s, even as the phrase “cleantech” started to come into currency, the number of venture capitalists putting significant investments into the sector shrank significantly. The members of this fairly tight “cleantech club” were either small-fund sectoral specialists, or gratefully welcomed individual partners at generalist funds. I found myself in cleantech venture capital late into this period, and I remember how it felt like a hugely valuable validation whenever a generalist VC would talk about being interested in cleantech... or heck, talk with me at all. It felt like most of the “cleantech club” of investors knew each other pretty well, and were always co-investing with each other (since they had small funds, or were partners at a generalist fund and needed to co-invest with a sectoral specialist to validate the technology they wanted to put money into). This small group of investors continued to focus on hardware business models. Why? Because market-ready hardware like cost-effective solar panels, etc., didn’t really exist yet. So a) without a base of hardware/infrastructure out there, there’s nothing to build other business models on; and b) the threat of commoditization of the hardware wasn’t very acutely felt, when no one had yet to pass the threshold of commercial viability. 

The year 2005 marked a significant inflection point. It’s when many more investors started jumping in. I’m sitting here reading through my Q4 2005 Cleantech Group venture monitor, and it’s fun to look back upon that period where more deals were seed or first-round than follow-ons, energy generation technology was only in its second year of being more important than other investment categories within cleantech, and the West Coast was only then starting to be the dominant region for cleantech deals.

Why did the inflection point happen then? Partly due to oil prices breaking through above $50 and heading upwards. Partly because the topic started to be written about more in the public media. And, relatedly, in 2004, energy investments had done well. Visible leaders within the venture capital industry, such as Kleiner Perkins, started to be more visibly active in the sector, with Alan Salzman of VantagePoint declaring that the next Google was going to come from cleantech. And the SunPower IPO certainly helped.

But I think another major factor is that 2004 marked a doubling of the amount of money put into venture capital by LPs.  All of a sudden in 2005, big VCs had a lot of money to put to work. And cleantech seemed like a good place to be able to put it. Remember, VC firms typically look to raise funds in 2-year cycles, so when they raise a big fund, they need to put much of that money to work within the next 24 months. So when the VC herd started moving into doing deals in the cleantech sector, they weren’t going to do it in small ways.

So the die was cast. Cleantech was a sector dominated by hardware plays, the few successful exits were perceived as being based upon proprietary intellectual property (as opposed to branding, customer bases, network externalities, or other sources of shareholder value), and now big money was looking to move in. What else could result except a high level of capital intensity as investors looked to develop highly proprietary equipment-based efforts to make commercially viable solar panels, biofuels, batteries, etc.?

At this point, the sector continued to gain in presence and LP interest. From 2005-2008, venture investments continued to rise, several important cleantech markets started to see significant growth, we started to see some additional venture-backed cleantech companies IPO, and most importantly large corporations started to take these technologies seriously. More capital-intensive investments were made, and few of these big bets going out of business, as an even bigger follow-on was always possible. According to the Cleantech Group, from 2005 to 2008, the average size of a first round in the sector more than doubled from $5M to $13M, and the average size of a follow-on round rose from $8M to $26M.  Biofuels and some other sectors of course were huge recipients of venture dollars, but the real story was solar, which (again, according, to the Cleantech Group) rose from being 15% of venture dollars in 2005 to nearly 40% in 2008.  Several cleantech specialist firms were able to raise very large funds, and generalist firms established cleantech teams.  As the big firms started throwing their weight around, the smaller sectoral specialists stopped being so valued for their experience, and I even heard of some refusing to co-invest with each other anymore because of the stigma attached to being perceived as “just being a little cleantech firm” unable to do deals with the big-brand generalist firms.

And then, of course, the global economy came to a screeching halt. This not only meant hard times for many cleantech startups’ revenue forecasts, it also meant a drying up of the LP dollars going into venture capital overall. The period 2009-2011 will be looked back upon as a real dry season for the sector. First of all, on the policy/politics side, it’s been a disaster here in the U.S.: Not only did the hoped-for climate change legislation get royally screwed up by Congress, but also the visible blow-ups by Solyndra and other government dollar recipients has very much chilled political support for the sector overall. And partly as a result, as LPs pulled back from venture capital overall, they particularly soured on cleantech. This means that many cleantech specialist firms weren’t able to raise their next fund, and many generalist firms sent their cleantech teams packing. Furthermore, some of the technology bets made earlier really did start to pan out. Whereas before, there were few commercially viable offerings in many cleantech sectors, now suddenly there were lots, all competing with each other, and driving down margins and prices. Thanks to that, and some significant public investment by China, 2009-2011 was a period of significant and rapid commoditization of many clean technologies.  

Thus, there was a somewhat strange bifurcation of the cleantech venture dollar cycle. Seed and Series A deals were hard to come by, and were skewed toward the new watchword “capital efficiency,” which really meant software-based plays. And yet follow-on rounds, predominantly by insiders, continued to flow into the previous capital-intensive bets, so that overall the sector continued to look dominated by such types of investments. Without angels and family offices stepping into the early stage void, and corporate investors stepping into the late stage void, and government support at all stages, the sector might have seen a real collapse. Instead, thanks to these investors and supporters coming in, as well as VCs’ willingness to continue to back their own bets, the period looked like a “go sideways” period, at least from those outside looking at the data.

For insiders, however, this has clearly been a rough shakeout period. Many startups, in the solar, biofuels and vehicles sectors in particular, have gone under or are in serious trouble. Many capital-intensive bets have run out of steam and investors aren’t there to help like they were before. And there’s even been a shakeout of the investors as well. Multiple smaller cleantech VC firms have gone under, and certainly there’s been a dramatic contraction in the number of cleantech-dedicated investors at generalist firms.

What does 2012 look like so far? A simultaneous accelerated shakeout period, and yet also a rebirth. We’ll start to see more firms finally able to raise their next fund, albeit a smaller one. We’ll start to be able to discern which startups in the crowded sectors like solar and biofuels have staying power, and which ones are going to be crushed by rapid commoditization and price drops and the sudden withdrawal of government support. And we’re going to see the emergence of more new investment models.

So there you go: 15 years of cleantech venture capital in one oversimplified column. Apologies for such a long column, but I wanted to post it all in one piece as a necessary set-up to columns soon to follow, talking about some of these new investment models that I see emerging.  I’ve been writing this column since 2005, and I sometimes lose track of how much things have shifted over that time, so it’s good to review before plunging ahead.

And I hope you, gentle reader, take away one major lesson from the above -- namely, that the “inherently capital-intensive” nature of cleantech venture capital really isn’t so, at least not nearly to the level we saw it become. The uber-intensity of capital spending in cleantech startups was a result of several choices by VCs along the way, based upon perceived lessons and opportunities, and the incentives various investors had. Certainly, the cleantech sector needed to be hardware-focused as recently as five or so years ago. Because the hardware/infrastructure is a necessary precondition for many other business models to follow, just as we saw in the IT and telecom sectors. But by now, if an investor views cleantech as a capital intensive sector where patented technology is the most important source of value, that is their choice. It can be, and has been, but it is not inherently so. Many other markets dealing with the production and use of physical products have been successfully disrupted in non-capital-intensive ways, after all.

More on this topic to follow.

What Is the Appropriate Role for Government in Cleantech Innovation?

Rob Day: February 28, 2012, 3:00 PM

It's not a popular thing to argue right now, but yes, there certainly is a vital role for government in support of cleantech innovation.

Let me start by acknowledging that I absolutely understand and quite often agree with the sentiment that government shouldn't be in the business of venture capital. Market-based policies are, to my liking, almost always preferable to policies where government employees select and fund specific innovators or companies. Thus, the most effective way for governments to support cleantech innovation would be to price in externalities like climate change and dependence on imported energy, and then let the market sort things out.

But that's not likely to happen anytime soon in the U.S.

So in the meantime, how should we view policymakers' efforts to promote innovation and startups that would otherwise languish in today's skewed pricing environment? It's a very complex problem, which I'll illustrate below.

I would propose that an appropriate government effort to promote cleantech innovation will follow three core principles:

1. Additionality

Within the realm of desirable outcomes for the U.S. economy and energy mix, some are already being tackled by the private sector, and some are not.  As a rule, government efforts even in economically beneficial innovation areas shouldn't duplicate the existing efforts of the private sector. In this case, the government should be aiming to fill capital gaps.

This is a lot easier said than done, however. First of all, how do you define a capital gap? It's hard enough to get reliable information about venture funding overall, much less get reliable data about what specific stages and sectors and business models are hard to get funded. Secondly, these capital gaps also wax, wane, and shift as investor enthusiasm for a sector ebbs and flows. Thirdly, in some of these capital gaps, there might be non-institutional investors who are interested in putting in money where the institutional VCs won't, and the capital gap is one of check size (angels writing $25,000 checks when $250,000 is what's needed), not one that's sector- or stage-driven. And finally, there might even be gaps across various efforts within an individual company -- for example, a research project at a venture-backed startup, where the research wouldn't have happened with VC dollars alone.

You also want to avoid either having these government-directed dollars flowing into the hot new startup (because the program is under pressure to show some 'successes' early on), or a negative selection bias where government dollars are being directed away from the best innovative startups because VCs might become interested. But you do want to see leverage resulting from these efforts, where the government program helps to unlock follow-on capital from the private sector. In other words, VC dollars following government dollars is one indicative metric of a successful program. But government dollars following VC dollars is less so (with the caveat of the additional research project scenario as described above).

How to prove additionality under such complex conditions? It doesn't make sense to attempt to codify a definition legislatively. Rather, the best approach is to to develop flexible processes that are outcome-oriented and provide opportunities for an evolution of the program over time.

2. Flexibility

One of the less-reported but damaging trends in U.S. policy right now is the shift in tactical control from the executive branch to the legislative branch. In other words, lawmakers are writing in too many detailed directives as to how programs should work, instead of stepping back. Because if there's one group of people you don't want designing your management process, it's Congress. Yet that's exactly what's going on. Many of the more public examples of failed energy policy recently were, at heart, driven by byzantine program designs dictated from Capitol Hill, not in the White House or inside the DOE. It's the equivalent of a startup's board of directors going around the CEO to specify how junior engineers in the R&D group should organize their daily activities. Lawmakers should establish goals, provide boundaries and oversight, and then let the implementers on the firing lines figure out the best way to accomplish these objectives.

If lawmakers are to surrender some control over process, however, there does need to be sufficient oversight, as well as a forcing function to make sure the program really does evolve over time as market conditions change.

3. The Voice of the Market

To reiterate, I strongly prefer market-based policies to any effort to have government groups select some specific recipients over others. But if there are some areas where economic imperatives necessitate this latter type of policy, the next best choice is to at least give the voice of the market a major role.

Peer review is one commonly used way to get at this. And if done the right way, it can be quite valuable. But if done wrong, of course, it's useless. A good peer review process will work hard to get a wide variety of knowledgeable technical and market viewpoints, control for potential conflicts of interest, and include force-ranking or other ways of making sure 'grade inflation' doesn't creep in. 

What I haven't seen as much of, but what would also be valuable, would be to have additional reviews done by groups of end-users or customers. This is tougher, and won't be definitive, because quite often customers don't know what they've been missing until they see something in action. But still, for building energy efficiency technology (for example), there should be collective reviews by large building owners who could eventually be purchasing the technology, both within the government system (e.g., let's get the Navy helping ARPA-E select what technologies they'd love to have commercialized for use on their bases) and, of course, really including the private sector owners of buildings. It will be important to avoid inclusion of channel partners who seem like purchasers but really are biased distributors (sorry, ESCOs). It won't be a perfect process, but these programs shouldn't be "build it and they will come" by design -- they should be bringing in the voice of the customer right from the point of selection. And the input and perspective will help all participating startups, even those not selected by the program.

Outside perspectives from market participants can, at least in a wisdom of crowds format, also help identify which areas are truly capital gaps and which aren't. Perhaps doing this on a case-by-case basis would be unwieldy, but at the very least, a large panel of advisors from the private sector could help evaluate the program staff's own identification and definition of capital gaps on an annual basis, helping to validate the strategy while keeping it somewhat flexible. It would have to be a large and diverse panel -- each advisor would absolutely walk in with their own biases in certain sectors and categories, so it will be important to flood out each bias with enough of a crowd of perspectives.

Bringing this all together, I'll throw out there a vision of what this might look like:

  • A program given a concrete and ambitious but relatively broad set of mandates in terms of goals (such as $1.00 per watt installed solar cost), with an authorized budget and department home, and some basic parameters around types of activities (grants vs. investments, etc.) and a requirement to demonstrate additionality.
  • An oversight committee to review the program's activities on a quarterly basis and strategy/program design on an annual basis.
  • An auditor established elsewhere in the government to evaluate adherence and effectiveness of the program on an annual basis.
  • A strong manager out of the private sector with a mandate to hire a top-notch team, tasked with designing and running the program.
  • Peer review and market input processes so that as much as possible of the program's activities are guided by the voice of the market, while still giving the internal team latitude to use their experience and judgment toward meeting the goals of the program.

Obviously, a fourth unstated principle, therefore, is that this requires a really sharp team. Not a bureaucrat-laden team, but a team of experienced managers with private-sector experience, leavened with smart young technologists and market analyst types. This is the single most important determinant, in my mind, between a successful effort like this and an unsuccessful effort. Groups like ARPA-E and the Massachusetts Clean Energy Center have had leadership like this, and it's a major reason why (in my mind, at least) they've been pretty successful to date. Effective, mission-oriented people have been brought on board by the leadership of each program, and they've found a way to make a positive impact.  

But will that last? I do worry that the crushing nature of politics means that such people will eventually be driven out by partisanship-inspired attacks. I'm not sure that can be avoided (unless anyone has any brilliant ideas on how to remove party politics from energy policy in this country?). So we can only hope that effective businesspeople with tough hides will continue to agree to lead programs like this out of a sense of mission, and that they will be able to continue to inspire strong managers and analysts to come join these teams even though they will have to expect that it becomes unpleasant at times.

In the meantime, we can hope to continue to see broader recognition of the need for market-based energy policies that will establish a more even playing field, so that all of the above becomes less necessary. Because right now, it's absolutely critical.

What’s Going On With Corporate Investors in Cleantech?

Rob Day: February 22, 2012, 9:00 AM

Walt Frick posted a good rebuttal to the Wired "cleantech bust" article recently, in which he points out that venture dollars going into the sector remain high.

This is true, but as one of my fellow panelists at the Kellogg PE/VC conference yesterday pointed out, a lot of those dollars are simply follow-ons into existing investments. And furthermore, corporate investors have really been filling the gap recently.  One lawyer I spoke with recently who sees a lot of cleantech transactions told me that over the past 12 months, most transactions he's seen have included a strategic investor as the predominant "new money" in the deal.

It's clear that many large corporations have determined that there will be growth opportunities in emerging clean technologies, and at a time when many corporations have been hoarding cash they are thus able to put some money at work in venture investments in the sector. This is very encouraging for the sector, of course.

But corporate venture investments have a history of piling on at the end of cycles. Does this current wave of investments portend bad things for the cleantech venture sector, given the lagging indicator they've often been?

The alternative optimistic view says that "this time is different," because various clean technologies are reaching a point of maturation where they are "ready for primetime" -- and this just happens to be at a point in time where corporations have capital and VCs don't. And in addition, the generally horribly ineffective channels for clean technologies mean that large corporate partners do indeed have value to add, as opposed to other "bulges" in corporate venture investing, where they were just buying late into the party.

At the risk of saying "this time is different" (famous last words), I do tend to believe this latter, optimistic view. Mostly because I don't see a lot of evidence that corporate venture groups are dramatically overpaying to buy their way into 'hot' companies. Indeed, I see a lot of bargain-hunting and serious evaluation of underlying technologies instead of just momentum investing among corporate VCs. I do believe that many large corporations have determined that clean technologies will be strategic growth areas for them over the long run, and that this is a buyer's market, so it's an opportune time to forge some relationships, investment-oriented and otherwise.

But even if so, there's still a significant disconnect going on.  While these corporate venture groups are investing in growth opportunities, the operating units within these larger companies are adopting cost-saving clean technologies as slowly as ever.

A long, long time ago, a colleague and I wrote about four different ways "sustainability" can be used to create economic value for large companies. The first is simply to help ensure "right to operate" -- that is, avoiding major environmental screw-ups. The second is as a means of identifying cost savings via waste reduction. The third is adding new products with resource-efficiency advantages, and the fourth is redefining the entire business. (You can learn more about this framework here.)

Corporate venture groups are primarily concerned with the third of these opportunities: new add-on businesses. But there's a huge opportunity in the cost-saving category that is being missed by these same companies.

I see a lot of industrial energy efficiency startups right now, for example, that are having a hard time getting large corporates to act quickly to purchase new lighting, controls, and other systems that would be relatively easy to implement and have compelling ROIs. You would typically think that a two-year payback period is a no-brainer for a corporate operating manager to pitch internally, yet I'm seeing even six-month paybacks not get the traction you would expect. Why? Mostly because these aren't strategic priorities.

The corporate world has shifted a bit so that C-suites are often focused on executing on a top-three set of priorities. And rarely is "make our facilities run more efficiently" one of these top three stated priorities. Without a specific strategic mandate, the plant manager fights an uphill battle getting the CFO to pay attention, and the CFO doesn't want to spend time pushing these opportunities down on plant managers. And then there's the "all the other stuff" dynamic -- plant managers have three priorities themselves: production, safety, and all the other "stuff."  Energy (and other types of) cost savings fall into this distant third category.

I found it ironic that our cleantech panel yesterday was held at the same time as a panel on how PE firms can create additional returns by driving operational improvements at their portfolio companies. Ironic, because we should have combined the panels. Indeed, thanks to efforts such as the Environmental Defense Fund's Green Returns project, PE firms are actually helping drive adoption of resource-efficient technologies pretty effectively within their portfolios.  

That's because they've made it a strategic priority (because it's such low-hanging fruit with rapid returns). But too often I go out and talk with a corporate venture group, and we'll be comparing notes on investment areas of interest, and they make it clear that their mandate only covers revenue growth opportunities -- they have no ability to invest in technologies that could save their company money in terms of cost savings. Even at companies like Wal-Mart that are doing a pretty effective job of making a priority of resource efficiency in their operations, the venture group is forbidden from investing in companies that could become vendors to their facilities.  

This is a major strategic disconnect -- and in my opinion, a mistake. The most direct way to add to earnings per share is to reduce the costs necessary to create the same dollar of revenue. But some of the very same large corporations now investing into somewhat risky cleantech venture capital deals aren't effectively adopting many of the readily available and proven technologies that could save their operations millions in costs. You, Gentle Reader, are a shareholder in some of these companies, no doubt, so how do you feel about that trade-off?

If corporate leaders are indeed serious about driving future returns through investments in cleantech, they need to make sure that's an urgent priority for their Ops managers as well. Cost savings through adoption of new efficiency technologies should be a priority at every large firm.  

If it takes your plant managers nine months to agree to purchase a system that has a six-month ROI, you're doing it wrong.

Large Corporates and Family Offices: A Need to Connect

Rob Day: January 30, 2012, 2:41 PM

One thing many cleantech VCs are good at is connecting with large corporations' strategy and venture groups. They regularly chat to compare notes, discuss market trends, share investment perspectives, identify areas of needed investment, opportunities to work with the VCs' portfolio companies, etc. It's a win-win.

I was surprised upon joining the family office community to discover that these groups are (with some definite exceptions) not as good at this. There are probably several reasons: 1) family offices are often already affiliated with some companies that the family owns, dampening the supposed need; 2) corporate strategic groups don't think about family offices because the FOs aren't asking them for money as LPs; and 3) family offices are generally not very good at networking to begin with. There are certainly some FOs that do have good outreach to corporate groups and vice versa, but it remains an untapped opportunity.

I've been meeting and speaking with corporate leaders for the past few months, to argue for a need for much more regular communications between the two communities. The reasons for family offices to more regularly connect with strategics are the same as for VCs. And smart corporate teams are starting to recognize the unique and additive value to holding such conversations with family offices in addition to their existing conversations with VCs.


First of all, family offices are much less limited in terms of the types of business and projects they can invest in. They can be more patient and more flexible. This means they'll often be looking at a different scope of opportunities than the VCs might be. Some FOs will be looking at very early, long-development, really-big-upside opportunities that would take too long for VCs to invest in, at least at that seed stage. This is especially true when one broadens the definition of FOs to include very wealthy individuals. Others will be more open to investing in different service and business models instead of the proprietary technology plays that VCs continue to favor (at least in this sector). Still others will be able to invest in project finance opportunities. In one of our investments at Black Coral Capital, we invested as project investors into a pool of capital alongside a venture-type corporate equity investment by a large corporation in the developer of the pool. These are the kinds of collaboration opportunities that corporates miss if they're not engaging with the family office community.

Secondly, despite some instincts to the contrary, the fact that the family office is often tied to other, larger family-owned businesses means that there are other reasons to hold the conversation as a means of building broader relationships than just common investment opportunities.  

Thirdly, that family offices aren't looking for LP dollars means they will be able to express a different perspective than many VCs will in the same situation.  No one ever provides a 100% objective perspective, but at least in these conversations the corporate team is talking with a professional investor who's not trying to sell them on investing in their next fund.

So should corporate strategy teams start reaching out broadly to the family office community?

Unfortunately, if you know one family know one family office. No two are alike. There are an estimated 3,000 or so single-family offices of significance in the U.S. (BTW, here's a useful primer). But many aren't going to be as valuable a connection as they should be for the corporate team.  

Most family offices aren't in the business of doing direct investments into applicable companies. Many have wealth preservation, rather than wealth creation, goals. When they refer to doing "alternative investments," they may simply mean they're allocating dollars into hedge funds in addition to mutual funds. Very few family office gatherings revolve around the challenges and trend-spotting involved in direct venture and project investing.

Many family offices have simply been passive co-investors with big-name venture and private equity firms. I'm not going to criticize that strategy (in this column, at least), but for the purposes of this discussion it's enough to note that the corporate teams will get more insight from talking with the lead institutional investors these FOs are following.

And fewer still family offices do direct investments into cleantech. Starting from 3,000+ applicable single family offices, the number of FOs doing direct lead investments into cleantech private equity is bigger than you might think -- but it's certainly a very small subset of the 3,000+.

All of which is why we co-started the Cleantech Syndicate a couple of years ago (along with over a dozen other family offices, plus our friends at McNally Capital). We found it was best to aggregate a bunch of these rare entities upfront and build relationships across the teams, rather than wait until we had specific co-investment opportunities and then had to go seek them out in this opaque community on short notice.

Which speaks to the need for corporate teams to be very targeted in their outreach to the family office community. My message to the corporate teams I've been meeting with recently has been, "You should do more to engage with family offices and high net worths. But you should do it selectively, using these specific criteria." There's no magic here, there's just some simple catching up to do to get conversations between corporates and FOs up to par with existing conversations between corporates and VCs. It's worth doing. But it's important to do it right.


Allow me to hijack this space real quick for something different.  An old colleague of mine reached out and is doing something very cool, so I offered to let him write a blurb about his efforts to share with all of you.  Enjoy!


"I'm writing about an exciting education program my organization, The Keystone Center, runs around the country called the Youth Policy Summit ( We take groups of students to analyze a tough public policy problem, like water scarcity, climate change or childhood nutrition.  We teach the students to analyze the different facets of the problem, including the political, social, economic and technological, as well as different stakeholder views from industry, advocacy groups and government regulators. We provide the students with mediation and negotiation training.

"Students meet with adults from these different stakeholder groups, and then assume the roles of these players as they work to find consensus-based recommendations. They take their suggestions back to their communities and to local legislators and business leaders. More importantly, we have worked with past sponsors to identify future interns and workers.  We truly feel that we are creating the leaders of tomorrow's workforce.

"We have conducted 22 summits over the past eight years, and have found that students care passionately about sustainability, and are passionate about energy and water issues whether they are from rural Appalachia, downtown Detroit, or the Upper East Side of Manhattan. The program trained 125 future entrepreneurs last year, 80 of whom were non-white. They are now entering college with a newfound vision to make the world more sustainable, and to seek opportunities in science and technology to help us get there."

Anyone out there who wants to get involved or support this effort should feel free to track down Jeremy Kranowitz at the Keystone Center (

“How Do I Get a Job in Cleantech Venture Capital?”

Rob Day: January 10, 2012, 6:38 PM

Around this time of year, the amount of inbound requests for coffees and "picking your brain" chats is always pretty overwhelming, as business school students and others start thinking about how they would love to be a cleantech venture capital investor.

I wanted to write down a few thoughts for such folks in case they would be helpful. Unfortunately, much of what I have to give is simply tough love. Because it's very, very hard to break into cleantech venture capital. When you account for the few specialist teams out there still actively investing in the sector, and then further account for the number of such firms that are hiring any new associates, I would estimate there are probably only one to two dozen new positions in the industry each year for anyone who doesn't already have deep experience. At most. Last year I think it was even less than that. There's at least 10 very interested job seekers for every one available entry-level cleantech venture job, and probably many more.

So with the caveat that no matter how smart you are, the numbers are stacked against you, here are some suggestions:

1.) Think hard about why you want to do this type of job.

I know one of your b-school classmates spent their summer interning with a venture firm and has been quietly lording it over everyone else; don't fall for their swagger. It's not the most direct pathway to achieve your goals, whatever they are.

If your goal is to make money, go into project finance or hedge funds or buyouts or Wall Street.  

If your goal is to make a significant impact on the cleantech industry or on the environment or such, go into a large company and work to make them more green. There, even a small shift makes more of an impact than most cleantech startups ever do.

If your goal is to find yourself doing a lot of exciting entrepreneurial things, go be an entrepreneur.  

If you're looking for job stability and an easy work-life balance, you're definitely barking up the wrong tree.

Venture capital is simply not the best way to accomplish any of those goals. Be honest with yourself about what you really want to do, and also don't fall for the Sunday New York Times-type hype about how VCs are heroes of the innovation world. That's a carefully crafted image some VCs have put out there, very much on purpose, but the true heroes are the entrepreneurs and the corporate managers who go out on a limb to work with entrepreneurs. They actually make stuff happen -- they're the ones to really be admired. There are lots of more impactful (albeit less heralded) ways to accomplish your goals than being a VC, I can pretty much guarantee it.  Don't get me wrong, it's a really fun job if you can land an opportunity in the field -- I love it with a passion that grows the more I time I spend doing it. But I can also tell you that if you want to be a cleantech VC for somewhat romantic and unresearched reasons, you probably won't be a good one anyway.  

And don't think that if you get an entry-level job in cleantech VC your future is secured. It's an up-or-out type of industry, and for the most part, the associates end up going out instead of up. There simply aren't enough openings at the partner level to sustain even the number of justifiable advancements, and it's hard to do well, so there are a lot of folks who find they don't like it or can't cut it. It can be a good springboard into other things, often entrepreneurial endeavors, and can be a very educational experience, but don't fight for an entry-level VC position and then think you've pegged your career for the next 40 years. Heck, venture capital as we know it may not be around 20 years from now -- it's a broken model.  Do you really want to fight to get into a shrinking club?  

In other words, don't go after a cleantech venture job unless you're deadly serious about it.

2.) Network, network, network. But don't just do quick calls and coffees. Do something meaningful.

Yes, there's no substitute for networking your way into a venture capital gig. VC firms typically don't advertise when they're thinking about hiring a new associate, so it's often a matter of right place/right time. One strategy is to watch for announcements of firms that have done first closes on a new fund. That often is a trigger for new investments, and perhaps some changes to the existing team (either up or out), and thus maybe they'll be looking for someone to bring on board. So start with such searches -- but don't be satisfied just talking to someone there.

No one gets hired into a venture capital firm because they impressed one of the partners there over a coffee or during a phone chat. And disappointingly, VCs also don't talk to other VCs about how they're hiring a new associate or such. It just doesn't come up very often. So the idea that a VC you talked to will follow up with you, out of the dozens who chatted with him/her, to let you know about another firm that's hiring an associate is a pipe dream.

The only way you get hired into a venture firm is by impressing them with your ability to actually add value, either to portfolio companies, or to the diligence process. Here are a few networking-your-way-into-VC dos and don'ts:

DON'T try to impress a VC with a couple of general investment theses you've come up with. They've been doing this for longer than you have, they've seen several companies fitting that thesis already, and have already been all over it six ways till Sunday.  

DO pick one subsector you're going to get super-smart about and dive into it. I still remember a b-school student I knew several years ago who decided he would become an expert on building-integrated PV.  He ended up in an operating role instead of an investing role (see point #1 above), but I still periodically catch up with him. If you want to stand out because of what you know and who you know, stand out as a specialist, not just a clever person.

DON'T ask for "thoughts and advice."  It's often a waste of time for both of you.  

DO ask for quick thoughts about specific companies you bring to the table, especially if they're in a subsector you're trying to become a specialist in. An investor is much more likely to give you tactically valuable information if you ask them for specifics instead of generalities.

DON'T ask them to refer you or intro you to their colleagues if they don't already know you well. Venture capital is a reputation-driven industry. No one wants to get a reputation for having sent time-wasters to go bother other investors.

DO ask them if they know of any firms that are about to close on a new fund but may not have announced it (as per the above).

DON'T try to impress a VC by bringing them a startup they likely already know about. If you found out about the startup by reading about it somewhere, the VC already knows about it. If you bring them a stealthy or super-early effort, maybe that will elicit some interest, but it better be a really promising company and not just a fellow b-school classmate's whimsy.

DO get to know VCs by putting significant time into supporting efforts they'll care about -- activities like the MIT Energy Conference that will be bringing in VCs. Even better is getting involved in nonprofit efforts that cleantech VCs are involved in, either professionally or on the side. Find any excuse to spend some quality time with the VC over a shared task, in other words, instead of just a quick coffee and some bland advice.

DON'T criticize a VC's investments. If you really have something to get off your chest, do it with appropriate caveats.

DO see if there are ways you can deliver some real value through a dedicated project. Offer to do a market map. Offer to do some specific biz dev research for a portfolio company. And best of all, intern. An internship is your single best pathway into VC, at least for young professionals.

Show the VC how valuable you are; don't expect them to get that on the basis of a brief interaction and a resume, or to hire you based upon your unproven potential. The great thing about the DO items listed above is that they also position you for other fun roles besides VC, leveraging the same experiences and knowledge and networks you've built.

3.) Expect contradictory advice.

Aspiring VCs often go to established VCs and ask them for advice as to how best to become a VC. Since "don't bother" or "be lucky" aren't very satisfying answers, the VCs give advice as best they can, but it's often very contradictory, leaving the aspiring investors even more confused. Why?

First of all, there is no standard path into venture capital. Everyone got there via a unique path.

Secondly, since there's no right way to do venture investing, there's no right way to break into venture investing. VCs who are former entrepreneurs will tell you to go be an entrepreneur. VCs who are former investors of another type will tell you to go get some other investing experience. VCs who are former consultants will tell you to go prove your value by doing market maps or doing some specific business development research for a portfolio company.

In general, I think former entrepreneurs do have a better shot at becoming VCs -- and then at being good VCs. So much of the role involves networking with entrepreneurs, knowing the challenges of being an entrepreneur, and being able to provide value to entrepreneurs. So an entrepreneurial background is a very useful thing, more useful than being a consultant or a banker.  

And who knows, you might decide you like being an entrepreneur better anyway; who cares about going over to the dark side and becoming one of those meddling VCs?

4.) Have a Plan B that you pursue just as actively, in parallel.

Be prepared for your quest to network your way into a VC role to take a long time, and very likely to end without you getting such a role, since the odds are stacked so heavily against you.

The smartest thing you can do is have another plan (or even more than one) that you pursue in parallel that you would also be excited about. Create options for yourself.  

Many VCs find themselves in the career by accident, having stumbled into it along the way. In fact, that's what happened with me -- I started doing some project work for a cleantech venture firm as a way to get smart about what entrepreneurial opportunities I could identify in the sector, and ended up getting hooked by the venture capital work instead.


So go out there open-minded.  Look for activities you can do that will build deep knowledge in particular areas, and rich networks across investors, entrepreneurs and experts And then you'll find a good way to leverage those assets one way or another. If by networking with and working with VCs you find an opportunity there, grab it.  But if you find a really rewarding entrepreneurial experience for yourself instead, grab that and run with it.  

The twisting road may bring you back that way later on anyway.

12 Predictions for ‘12

Rob Day: December 28, 2011, 3:52 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, 1:30 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!