Today, the Clean Economy Network announced a merger into the Advanced Energy Economy, a network of cleantech business leaders and regional organizations. It's been a fun ride to get to this important transition point.

Four years ago, Andrew Friendly and I launched a "Renewable Energy Business Network" chapter in Boston, borrowing from a successful model we'd both seen work on the West Coast, for informal and event-based networking-with-a-purpose among cleantech entrepreneurs and innovators. It caught on very quickly, and we found strong demand for similar efforts across the U.S., so we officially co-founded REBN as a nonprofit, and built up an eventual network of 15 regional volunteer-led REBN chapters in the U.S. and Canada, with thousands of members. It grew so quickly and successfully that we and our thin staff of two part-time, underpaid heroes (thanks, Laura and Helen!) were overwhelmed, and we saw an opportunity to deploy this network for even greater purpose, so we merged REBN with the Clean Economy Network, a D.C.-based nonpartisan organization that had been launched in 2009 to represent the cleantech industry at a national and regional level.

I continued on as co-chairman of the board of the Clean Economy Network Education Fund (a c3), and have spent the past couple of years working with CEN staff and the other CEN board members to help continue to build up that organization and work (sometimes successfully, sometimes not) on clean energy policy. With the launch of the AEE, a well-funded new platform bringing together regional clean energy nonprofits like the New England Clean Energy Council and others, it made sense to combine forces, and so after several months of hard work by a lot of folks in both organizations, today we see CEN and AEE joining together to take the next step. 

My congrats and huge kudos to all the volunteers and staff of REBN and CEN today.  Thank you!

I learned and re-learned a lot over the past couple of years. Regarding federal energy policy, it was a fascinating time to watch the sausage being made (or more accurately, not being made, at least in recent years). I come away more convinced than ever that congressional energy policymaking is deeply and fundamentally broken. Americans overwhelmingly want cheap, clean and domestically sourced energy, but the system isn't putting forward any such long-term solutions. The most logical and straightforward ways to positively shift energy policy have been needlessly politicized and/or overlooked. Egos and a desire for individual visibility too often trump the need for collaboration.

Environmentalists, sometimes claiming to speak for the cleantech community, often pick the wrong battles and pit themselves against the natural political allies of pragmatic cleantech policy, letting the perfect be the enemy of the good. Individual cleantech sector trade associations undermine the overall cleantech industry by fighting over portions of a dwindling pie, rather than banding together to push for effective, broader change. Powerful incumbent energy interests successfully counter any efforts to push for fundamental change, with campaigns of misinformation and overwrought rhetoric. When the U.S. military is saying greater energy independence is a core strategic imperative, and Congress effectively ignores them, you've seen all you need to know about congressional incompetence and impotence on this issue.  All of which is why the role of CEN, and now AEE, is so important for the long run.  There must be a voice, even if for now it often remains drowned out amidst all the noise. 

But more positively, I came away with a great appreciation for the nascent stage of development of our sector, from a basic community-building perspective. Partly because the wave of cleantech entrepreneurs is such a recent phenomenon, partly because cleantech entrepreneurs and innovators are more scattered geographically than you see in software and web entrepreneurship, and partly because "cleantech" is just an umbrella label for a lot of disparate sectors and innovation areas, our sector is only now coalescing.

Cleantech entrepreneurs, be they new to entrepreneurship or just new to the sector, still don't enjoy the same fundamental networking, hiring, visibility, and customer-connection resources that entrepreneurs in other sectors often have access to. Pattern recognition across entrepreneurs and investors, which I believe to be key to the virtuous cycles leading to the success of web entrepreneurship, is hindered by lack of connections and learning opportunities, as water-tech entrepreneurs don't know what solar entrepreneurs are doing, and neither are kept aware of what's new in energy efficiency startups, for example. This is to be expected for such a fairly new and fragmented sector, but it's a challenge that needs to be addressed.

This is what I found so gratifying about co-founding REBN, and why I'm excited to be part of efforts like the Cleantech Open, helping bring entrepreneurs together, and bringing them resources to help build their chances of success.  If you are going to invest and work in the cleantech sector, you need to recognize that this sector is still at a nascent stage of development where we all need to get involved to help build core platforms and community assets that will enable future success for all of us. For one thing, getting involved is the most effective way to build out effective networks and rapidly learn lessons from others' experiences. The most effective networking is done when you're collaborating on something, not just bumping into someone at a single event. It's worth the investment, therefore, to dedicate time and attention to some such effort.  

And there are lots of such non-political opportunities regardless of where you are.  Across the U.S., many states are making clean energy an economic development priority.  Yes, in places like California and Massachusetts, it's pretty visible. But in just about every state I'm seeing these efforts, often in a completely non-political fashion. From North Dakota, to Utah, to Alabama, to Nevada, to just about all over, efforts to promote renewable energy and energy efficiency jobs and innovation are being put in place, and thus are creating opportunities to plug in.

Outside of economic development efforts, the communities are coming together as well -- here in the Northeast, we had a phenomenal regional Cleantech Open program this year, with several dozen startups getting to work with nearly 100 experienced mentors, with the support of forward-thinking organizations like the Massachusetts Clean Energy Center and others, all geared to helping these emerging cleantech entrepreneurs maximize their chances for success. All of this was done via volunteers and sponsors that were coordinated by only one full-time staffer (thanks, Karla!). That's a heck of a community effort; I was deeply impressed to see so many get so deeply involved.  No matter where you are located, something interesting is going on.

So there are lots of opportunities to plug in.  From just easy networking, to active mentoring, to supporting smart regional economic development efforts, to adding your voice at the national level. The most important thing is to pick one or two such opportunities that are interesting and important to you, and then to get involved. I know it's asking an awful lot of overwhelmed entrepreneurs to ask them to devote some of their precious little time to such side efforts. But now's an important time to do so, for the cleantech sector, and also to help build out your own networks and improve pattern recognition -- and to maximize your own chances for success.  One way or another, get involved. It'll pay dividends in the end.  

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Speaking of which, the Cleantech Open Northeast is looking for a new CEO / Regional Director.  If you're looking for an opportunity to work with a lot of cleantech entrepreneurs here in the northeast, and gain visibility and experience as a springboard to being a cleantech entrepreneur yourself, check it out.

I've heard it said that venture capital is an apprenticeship business, that it takes about seven years for a VC to become a proficient investor.  As I now get close to my eighth year investing in the cleantech sector, that aphorism resonates with me -- especially as I look back at the many ways I've failed so far as a cleantech venture investor.

I've been taking the opportunity to take a retroactive personal look at my investment patterns, at what I think has worked, and at how I've failed. I'm not talking about failed investments per se. I've had my share of those, but I'm really talking about failures in the sense of "Wow, that didn't work out according to plan."  In some cases, these investments have worked out okay over time.  In some cases, they're still being worked out.  

More experienced investors may shake their heads at some of these lessons as being pretty obvious. Agreed. I'm sure I'm fairly unoriginal in how I've screwed up over the years. But just in case it might be helpful to readers out there, I thought I would write a post exploring some of these experiences in general terms. Certainly, these are root causes of failure that I've identified over the past few years and that I am proactively seeking to avoid going forward.

Out of respect for those involved, I don't want to get into too many specific examples; besides, I'm trying to identify general causes of personal failures, not just isolated incidents or individuals or bad luck. The general lessons I've taken away from these failures are:

1. Don't attempt bank shots.

I've talked before in this column about how, particularly in the broad and multivaried cleantech sector, it can be smart for entrepreneurs to tackle a single niche first, own it, and then expand to the broader market from there. I continue to like that approach.

However, what I've found doesn't work, at least for me, is to attempt bets that require significant additional evolution of technology and offerings in order to expand beyond that niche -- plans that, to be successful, require accomplishing one difficult task, only to then have to take on another completely different difficult task.  

A concrete albeit frivolous illustration from well before my actual venture career: In 1999, after the IPO of Webvan, the idea of a capital-intensive grocery delivery business started coming under criticism, but I convinced myself I knew what the real plan had to be. After using groceries as the way to pay for building out that costly delivery infrastructure, Webvan was going to pivot from there to solving the overall "last mile" ecommerce problems. At the time, every delivery made by a FedEx or UPS truck cost an arm and a leg, and also required a signature. But if people are already scheduling their food deliveries around when they're home, I rationalized to myself, then that delivery service can also perform ecommerce fulfillment.  So I bought some shares, because I knew the real secret plan for Webvan was to cannibalize FedEx's lucrative Amazon.com delivery business. It's embarrassing to look back on it, but I then had the opportunity to briefly meet George Shaheen and hit him up with my theory, whereupon he politely but pretty directly told me I had no idea what I was talking about. I sold those shares right quick. Today, if you come visit me in my office, you'll notice a yellow Webvan box under my desk.  It's handy.  But it's also a good reminder to keep things simple and straightforward.

Unfortunately, that's not the only time I've made the same mistake since then. So as I look back upon such examples, I try to differentiate between a "niche-to-big-market" opportunity, which doesn't require developing entirely new competencies, technologies, offerings, etc. to make that transition, versus a "bank shot," which does.  Bridgehead and then expansion? Good. Pre-identified necessary pivot? Too complicated. Nonetheless, pivots will have to happen in many cases as circumstances change. But from day one, if I'm not seeing a simple success story, I've simply been fooling myself.

2.  Keep peeling back the layers; no shortcuts.

Again, this should be pretty obvious. Still, it amazes me how many venture investors -- myself definitely included at times -- just simply haven't dug deeply enough into the investment opportunities they're pursuing or the portfolio companies they're working with. This I consider to be my least excusable source of failures, and the most painful to admit to myself and others.  

I've failed in a couple of examples to do my own diligence, instead relying upon the work of existing investors in the company, or co-investors with particular experience in a technical area. It's not that being a passive follower investor can't work out sometimes; generally, people in venture capital are smart and diligent. But I never should have taken that approach, given that I generally don't like to invest where others are already active. And it's bitten me a couple of times when I took other investors' word for it, simply because of their resume or stature or the pedigree of their firm, without recognizing that they were also inexperienced in that sector or not going deep enough on this specific opportunity.

Also, I've certainly found my early efforts at management team diligence to have been pretty disappointing in retrospect. Pattern recognition, spending a lot of time with the management team, and references are all necessary, and I carried out those tasks. But I no longer believe they are enough. So at Black Coral Capital, we have adopted deeper management team evaluation methodologies that get into much more detail on an entrepreneur's prior experiences, successes, failures, lessons learned, demonstrated patterns, etc. And we've learned to look not just at the CEO, but also at others within the senior management team, depending upon the stage and size of the company.  Where we've shortchanged this process, we've come to regret it. When we act as LPs, in fact, we also deploy similar approaches to assessing the senior partnership team at venture firms we are considering backing.  

There is another place where lack of depth has hurt, and it's also surprising to recognize, because it's typically after the investment is made. But it's a basic human conflict-avoidance instinct, I've found, that causes many investors to not dig into areas of cognitive dissonance in the boardroom. The CEO says something, it doesn't quite add up, but no one calls him or her on it, especially in a group setting. Often, it's because to do so appears to be micro-managing, overly detail-oriented, and potentially antagonizing the CEO (particularly with founders). But I've learned a lot over the years from watching experienced investors in the boardroom, especially those who've learned to recognize when they feel a little tickle of cognitive dissonance, even over something seemingly minor or overly detail-oriented, and then keep scratching at it until they resolve it. And I've learned to really appreciate CEOs who understand the value of a board member who gets into the details -- and who welcome it instead of feeling threatened by it.

These things are just too damned important to gloss over, and even minor things that don't add up sometimes end up revealing bigger issues. The lack of consistency between development timeframes on two slides in the board deck can end up eventually revealing major unvoiced schisms between senior management team members. The lack of detail about an important partnership discussion can end up having been an early indicator that the discussion is not gaining traction. The glossed-over miss on margins can end up leading to a critical and as-yet-unplanned conversation about possible competitive threats. And those are just a few examples.  

3. Value the team more than the technology.

I know there are investors out there who vehemently disagree with me on this point. And I respect that; I can see both sides of the coin. But in cleantech, more often than not, I think the balance is skewed toward my perspective.

If you look back on the relatively short list of cleantech venture capital success stories to date, they most often weren't successful with Plan A. The original idea -- and in some cases even the original technologies -- were discarded along the way as the market, company and circumstances evolved. These are the unplanned pivots I referred to above. Especially given that there are often many different ways to accomplish what the startup is attempting to do (turn photons into kilowatt-hours; free up capacity upon demand; turn biomass into liquid fuel, etc.), it's unclear whether there will ever be any "killer apps" in cleantech. Well, maybe there will be, but I think the odds are against any particular technical innovation being so mind-blowingly brilliant and unreplicable in any way that it will lead to success despite a mediocre team.

During the early part of my career, I often worked with management teams that I decided were "good enough," and I saw it as my job to help them elevate their performance to a high level, justifying this on the basis of the price to be paid for getting a chance to pursue an investment thesis I really liked. After all, many of these teams were first-time entrepreneurs, and they can't be expected to instantly be great, so perhaps by collaborating with them we could all learn together how to make it work out.  

This isn't completely flawed thinking. VCs are supposed to add value to the teams they partner with -- in fact, that's one reason for entrepreneurs to partner with VCs in the first place.  And all entrepreneurs, successful or not, are first-time entrepreneurs to start off. I am certainly not suggesting that only repeat entrepreneurs can be successful. Instead, you have to look at the core skills and attributes of the entrepreneurs and assess their ability to tackle the specific challenges they'll face in this particular effort -- whether they're a first-time entrepreneur or not.  And what I've found is that too often in my early career I knew the team had gaps, but I felt that I and other investors could help fill those gaps via advice and connections and, possibly, new hires. That rarely worked out.

For one thing, I'm still learning how to be a truly value-added investor, and also I'm not there every day on the front lines like the management team is.  And for another thing, some gaps can indeed be filled, but others are prohibitive. Furthermore, such approaches are really labor-intensive and difficult to scale as an investor.

More recently, even with an affirmed commitment to only working with top-tier entrepreneurs, I've had experiences doing investments where, going in, we knew a CEO hire would need to be made. We only did that with full disclosure and buy-in from the existing management team, and we have experience as a team on such efforts, so it seemed like a role we could play. But this is, of course, really hard. Especially in cleantech, where at this point in the sector's development, you're often bringing in a CEO hire from outside the sector, or simply fishing in a shallow pool of entrepreneurial talent because the specific subsector you're hiring into hasn't seen much entrepreneurial activity before now. We've found great CEOs in these situations, but only after long, painful processes that hindered the investment's performance.   

I've heard a couple of investors say things like, "I care more about the idea, because I can recruit a team around a great idea." That may work for them. But it hasn't worked for me so far in the cleantech sector. 

So I've learned again and again and again what all investors say, and experienced investors really know, which is that it's all about the team. Working with a great entrepreneur is indeed a privilege and an incredible advantage. It's the best part of my job. I love that at our firm, we have lots of flexibility as to what sectors and asset categories we can invest in, because it gives me a lot more latitude to work with phenomenal teams wherever I can find them.  

And it's also why I've made it a priority to work with efforts like the Cleantech Open that serve as "accelerators" for emerging entrepreneurs. I recognize how critical it can be for such entrepreneurs to tap into customers, investors, mentors, etc. Such efforts are so very important to our sector right now.

The three sources of failures I've discussed here are far from the only ones, but they're the three broad categories that pop out for me when I look over the past seven-plus years and reflect on what I've learned from failure. Failure is, of course, inevitable in venture capital. I feel I've actually been pretty fortunate to date in terms of results. But I've also been even more fortunate to have had these experiences, both good and bad. Every year I've looked back and been surprised at how much I've learned over the previous 12 months. I'm sure it'll be the same going forward. Venture capital may be a seven-year apprenticeship business, but I feel like I still have a lot more to learn before I would consider myself truly "good" at this. For now, I hope sharing some of this thinking is useful for someone out there. Or at least entertaining.

The Cleantech Group released their Q3 preliminary tally recently, and there appears to be some positive news in there.

In their global count, they saw not only an uptick in the dollars going into the sector ($2.23B in Q3 2011, up from $1.81B in Q3 2010), but also an increase in the number of financing rounds (189, up from 179 in Q2 2011).  Even more encouragingly, the number of Seed / Series A deals went up, so this wasn't just a quarter of insider follow-ons like we've seen at times in the past. The total of 128 deals they counted in North America was a new high for the region, they report, and represented a second straight quarter of deal-count growth. While they point to energy storage as being a hot area, it's important to note that a small handful of large battery- and fuel cell-related deals drove that sector to be a major recipient of dollars. Energy efficiency and solar saw the highest number of deals, and continue to feel like they're still "hot" even if the deal counts in each subsector are a bit down from their highs.

So, some encouraging news. But there were signs of distress as well.

They show average early-round deal sizes declining for a second straight quarter to $6.1M. That remains well off the peak average of over $12M for such deals from back in 2008. The fact that deal sizes are coming down isn't necessarily a bad thing, however. But the Cleantech Group readout (see their whole slide deck here for lots of data goodness) also notes that exits are hard to come by right now. So we're left with a lot of VCs holding existing portfolios, needing to raise new funds, but not having exits from existing funds that they can point to. Perhaps that's the reason why that out of the top 10 "venture deals" they list for the quarter, I count only a couple that had venture firms as their primary investors.

Furthermore, the entire VC asset category is out of favor right now.  As Dow Jones reported yesterday, VC fundraising is way down. Especially hard hit have been early-stage investments, which saw fundraising drop 41% year-on-year. If VC firms can't raise new funds, they can't invest in new deals.

This resonates with the sharp decline in the number of VC firms in the U.S. actively investing, as reported in August by Ernst & Young (sorry, don't have a link; working off a document) across all sectors (not just cleantech). Even as recently as 2008, they counted 911 venture firms making investments, of which 345 made four or more investments per year. By 2010, that number had fallen to 793 total, with only 274 making four or more investments. So far in 2011, that total is down to 564, with only 150 making four or more investments.  

There is a contraction underway in the venture capital asset category overall. And while some LPs still like the cleantech thesis, there's plenty of anecdotal evidence to suggest that this year (even before the Solyndra circus rolled into town), many LPs are generally backing away from the sector. So I would expect the contraction to end up being especially harsh on cleantech VCs.

This isn't to be over-generalized. Certainly, there are VC firms still investing heavily in cleantech, and certainly there are some specialist cleantech VC firms out there able to close on decent-sized new funds.

But in general, it doesn't look like the investors in this sector will be entering 2012 with deep pockets -- especially if a now-expected second recession hits the macroeconomy, further hurting LP allocations and exit pathways.

So while the Q3 results are somewhat encouraging, it will be surprising to see that upward trend continue over the next few quarters.

Once again, my advice to cleantech entrepreneurs is simple: if you have the opportunity to raise money, do it. And raise more than you think you'll need, so you have enough to last through a "winter season" in cleantech venture capital if that's what 2012 ends up looking like.

Root for that IPO window to re-open, because exits would really help bring back LP interest into the sector.

The economy is sputtering; VCs and LPs continue to be wary of cleantech; federal government support of the sector continues to be feckless; political rhetoric regarding cleantech is reckless; and the sky is falling (at least where I live -- we had five inches of rain in two hours yesterday).

Plenty has already been written by many people smarter than me about why Solyndra failed, and what lessons are to be drawn from it, so I haven't wanted to write about it. I see Solyndra as having been a big but not necessarily dumb bet, one that attempted to bring expensive panels into the market but with the intent of saving costs further downstream in the solar value chain, to provide net savings for flat-roofed customers. That bet obviously didn't work out, for a number of reasons: 1) yes, panel ASPs fell faster than predicted, although everyone should have been expecting them to fall significantly; 2) the downstream channel resisted significant change; 3) some bad luck and bad timing, no doubt; and last and most importantly, 4) execution and high cash burn.  

So that's that.  Should there be an analysis of how the company so spectacularly failed, and a re-evaluation of how the DOE's Loan Guarantee Program has been designed and administered? Absolutely. This was a big loss to investors and taxpayers. I've already discussed my views on the Loan Guarantee Program before in a number of forums: I believe that it addresses a key capital gap in the "valley of death" for cleantech innovations, but wasn't designed well; that it creates negative selection biases; that it is far too bureaucratic in ways that undermines its usefulness; and that it leans too much on a small team to make very big decisions with somewhat limited knowledge and resources. So there's a sober conversation to be had about whether government should be seeking to address that capital gap, and if so, how it should do so.

But apparently, today's hearing on Capitol Hill was a useless political circus and not an honest investigation or analysis -- by either party's representatives. It has become political football. And this may have a significant negative impact on cleantech startups that have nothing to do with the DOE programs or the like.

First of all, Congress is likely to throw the baby out with the bath water. While this particular high-profile program has had mixed success and will likely see some additional "wins" and "losses" going forward, there are lots of other DOE and other governmental efforts that are doing an effective job of providing economic return for investment of taxpayer dollars. But this episode is just going to further politicize cleantech and alternative energy, which is stupid. We need all of the above, in terms of energy choices. There's no compelling reason for anyone to have a philosophical problem with economically viable, domestically produced clean energy. But in an era when some people view energy-efficient light bulbs much in the same way that their political precursors viewed fluoride in drinking water, we can expect that this episode will result in even more political pressure for even the more effective governmental programs to be undermined and assaulted. If nothing else, politicization of the clean energy sector just adds further regulatory uncertainty to the environment we all operate in. And it could filter down to the state level, where to date, cleantech cluster creation has been a non-partisan issue.

Secondly, among LPs who were already increasingly skeptical of cleantech venture capital, this is just going to further dissuade them. I've spoken with a few cleantech VCs lately who are out there raising funds and have spoken with LPs who are uncomfortable with the asset category in general and the sector in particular. When Solyndra is the visible poster child for what "cleantech venture capital" is perceived to be, and then it blows up and becomes a political football -- that's not exactly a recipe for pension fund LP comfort. Of course, Gentle Reader, you and I both know that some of the more compelling investment opportunities in cleantech venture capital look nothing like Solyndra. In fact, the strong shift to energy efficiency among investors in the sector is evidence of this, and information-based cleantech is starting to show some interesting early momentum. Even in sectors like solar that saw the most capital-intensive investing a few years ago, much of the action is shifting to less capital-intensive plays and into other parts of the value chain.  Nevertheless, this episode will make it that much harder for large institutional LPs to allocate resources to the sector, until the shift away from Solyndra-type plays becomes more obvious.

This is all going to make it more difficult for cleantech VCs to raise funding from LPs, and thus it's going to make it harder for cleantech startups to raise funding from either VCs or non-dilutive sources.

The shame of it is that cleantech markets have never had stronger fundamentals. Energy prices remain high. Entrepreneurial interest remains strong. Corporations are doubling down, getting more and more involved in cleantech markets and making investments and acquisitions in the sector. The solar market in the U.S. is a net positive to our trade balance, and the solar market is one of the fastest growing markets in the country, even in the midst of the capital pullback and the nattering nabobs of negativity. The solar industry is not a dog. There are dogs in the solar sector and an overdue shakeout taking place -- but the solar industry is going to be a winner for the U.S. There are already next-generation solar producers who are quietly selling their products and beating today's low panel prices. They're just not making the headlines...yet. But there will be visible U.S. venture-backed solar winners who emerge from this consolidation phase with a lot of room for profitable growth.

Cleantech is at a low point right now. It will come back. The core needs are too severe. The corporate momentum is too significant. The entrepreneurial energy is too inspired. But thanks to this episode with Solyndra and with other shoes yet to drop, the sector may have to develop some successes over the next couple of years in spite of the politicians -- and in spite of the LPs. Eventually, they will come running back to jump in front of the parade once again. But for now, entrepreneurs need to hunker down and run lean and run hard.

You've taken a technology idea, developed it into a product or service, and convinced a few customers to buy it. Now it's off to the races, right?

That's been the prevailing theory behind a lot of expensive growth-round financings in cleantech venture capital over the past decade. But from what we've seen, quite often there's a next step in the growth curve that can be very difficult to predict and to pull off successfully -- transitioning from an initial consultative sales phase into a rapid-scaling standardized sales phase.

It can be hard to get customers for many types of cleantech products and services to try it, much less pay for it. Take energy efficiency, for example -- energy costs for building owners may be one of their top 3 or so expense line items, yet it's rarely top of mind and is often subsumed below other priorities like maintaining comfort and/or productivity. So if you have a new type of efficient HVAC system, no one wants to be the first to buy it and install it, even with white papers and data to show the system will work. The same applies to other cleantech areas like solar panels, smart grid, vehicles, water treatment, etc.

I've run across a few entrepreneurs in the cleantech world who are really good at navigating this early adopter phase to get initial products and services out into the marketplace. These entrepreneurs tend to have a well-honed consultative approach to sales, a very direct relationship-based approach to enlisting customers and convincing them to take a relatively bold step to purchase the startup's solution. They work through a long sales cycle to make the customer feel comfortable that the system will work and that the startup will stand behind it and not let that customer fail. They rapidly iterate their overall solution in response to potential customers' needs and wants. And they help the purchasing manager feel good about their decision professionally and personally.  

All of this takes significant time and effort. So while these entrepreneurs can be pretty gifted at making these first few sales happen, these skills don't necessarily lend themselves to a next phase of rapid sales growth, which can't be so high-touch.

In fact, it is at precisely this point that we've seen a number of venture-backed cleantech startups get themselves in trouble -- often precipitated by raising large rounds of "expansion capital" and then attempting to scale up too quickly.  

The startup may have overly high expectations of the effectiveness of recently enlisted channel partners, for example.  If the initial direct sales required a very consultative approach, sales efforts by channel partners are likely to require a similar approach. And often, distributors and resellers aren't as effective at that, nor can they scale up rapidly themselves, either. I've seen several startups who used early sales to enlist big-name channel/sales partners and then were surprised at how ineffective that partnership turned out to be.

Similarly, the startup may have successfully sold a downstream OEM on including their solution in that OEM's products, only to see the OEM underperform on sales. This has happened in the lighting industry a couple of times, for example, with LED component sales to large incumbent fixture manufacturers. Winning a few SKUs with that OEM is a great first step -- but then no market pull materializes because the OEM isn't very effective at selling the new technology and therefore initial POs to the startup dwindle instead of ramping up.

Alternatively, the startup may simply expect the direct sales efforts to ramp up quickly once the market sees its solution in place and working well. But the really difficult thing about many cleantech solutions is that even early sales often don't unleash market pull. It's not as if many purchasers of energy-related products and services are simply waiting on the sidelines until they see something that works. They often see lots of things that work. And yet they also have higher priorities on a daily basis, and they don't have time to sort through all their choices. So simply having successful installations to point to isn't enough to pick up significant sales momentum, at least by itself.

Meanwhile, the startup's investors are pushing for revenue growth, so new sales team members push harder and harder to win any deals they can -- and margins suffer and mission creep leads to overpromising on what can be delivered. I've seen at least one startup in the energy intelligence sector get sucked into projects that significantly drifted away from the company's core technology and competencies, and led to underperformance versus customer expectations. That startup still didn't see rapid acceleration of revenues even with such drift.

And yet, along with the above three types of failure to "turn the corner" and see rapid acceleration of sales, the startup may have significantly ramped up their expenses, to manage channel partners, or to do further product development, or to build out a direct sales force.  But if they overly invest in such capacity and sales remain tepid, cash burn remains high.  Let's be clear -- in all of the above examples, revenues were growing!  But they were growing at a lower rate than expenses were, and the startups got in trouble.  In a couple of cases mentioned above, the startups effectively failed.

So what does it take to make this difficult transition?  It requires standardizing the solution and being very hard-nosed about it. The initial "the Beta Customer is always right" phase needs to give way to a phase where -- as informed by those early customer interactions -- the solutions offered to customers come in a very finite set of options.  

This next phase also requires a very different skill set and sales approach. Instead of winning early sales at any cost, now the sales team needs to feel free to walk away if the customer is asking for too much of a discount, so this now requires a different level and caliber of sales team management, including changing the way sales team members are compensated so that it's not just top-line oriented. Counterintuitively, walking away from tough sales may help accelerate overall sales, if sales team bandwidth is a limited resource and other easier sales opportunities are being missed. This next phase thus requires a very formulaic inside and outside sales process, which therefore requires experienced sales leaders who know how to establish and manage such processes. Sales teams themselves may need to change, to better reflect the skills required for this next phase.

And now is when significant "direct marketing" can be helpful, so that in a very targeted way the next potential wave of customers are repeatedly informed about the startup's solution before the sales team has ever visited. The goal is that by the time a channel partner or sales team member shows up at a customer site, the customer has already heard several times about the startup's solution, the value proposition, and examples of success. They're primed to say "yes," or at least to proffer a faster "no." No more evangelical sales efforts with long lead times.  

Managing this shift also requires significant changes to product management, to logistics and operations, to customer service, and to many other aspects of the business, as well. In short, it's a very difficult transition to get right. Very few management teams, even the ones who managed the early market introduction with flying colors, can successfully navigate this transition without at least augmenting the senior management team to bring in these different experiences and skill sets.

Nevertheless, in many cases there will still be a need for a consultative sales skillset when expanding into new markets with new offerings, so I'm also not arguing that it's inevitable that the startup's leadership has to be changed to manage this transition. I haven't yet seen many examples of cleantech startups dividing the sales management role into two parts -- a leader of the inside and outside sales effort for the solutions that are already established in the marketplace, and a "New Business Development" leader. That model would be interesting to see tried out. But for now, I've only seen attempts to have the chief sales leader in the company manage both types of sales. And I think this is why many revenue-stage cleantech startups have struggled at this phase. Either they are so focused on the rapid scale-up that they lose the ability to identify and enter new market opportunities, and fail to escape out of their early-adopter niches, or they never add the kind of sales leadership more appropriate for rapid revenue scale-up within existing market opportunities.  

And while this transition is probably pretty difficult in any sector, I believe it is often exceptionally difficult in energy- and water-related markets. And it likely will continue to be until the universe of potential corporate customers for new solutions start making energy and water costs their top priority.

When my travel-heavy schedule permits, I try to show up at the meetings for my town's Renewable Energy Committee. They're usually a quiet affair, as the committee is a small group of volunteers who help the town assembly look into issues like energy efficiency improvements to the schools, some renewable energy opportunities, streetlight replacements, etc.

So I was pretty surprised to show up last night to find that instead of the usual four-person meeting, there was a packed room of around 20. Why? Because of recent local newspaper articles suggesting that the REC was about to put up a wind turbine at the town's middle school.

I sat back and just watched, and it was a fascinating look at the tensions that naturally result from efforts to put up local wind projects, particularly here in New England. To everyone's credit, it was a constructive and respectful conversation, even though (judging from the shaky voices and hands of some folks making comments) emotions were running high.  But instead of a fight, it was a very good open airing of facts and concerns all around, aided in large part by the fact that there was no real decision point on the project, which is far from being recommended to the town assembly, much less approved.

But after having looked at a number of wind turbine and wind developer investment opportunities over the past few years, it was my first opportunity to actually sit in a room while one such town conversation was held.

The concerns raised were numerous.

What about examples from towns in Maine, in Illinois, and elsewhere, where people complain about noise, light flickering, and falling property values? In some of these cases, there have been lawsuits. Turns out that evaluating noise and flickering was a mandatory part of the feasibility study, which is still being reviewed. But such concerns are being treated seriously. "People are getting sick!" exclaimed one attendee, but that wasn't really addressed in the conversation except to note that health concerns were naturally also part of the feasibility study.

How big would the turbine be? The analyst had evaluated several options and recommended a 75-meter-tall model, said one member of the committee. "What is that in feet? Please use feet!" another attendee interjected. "It's big," acknowledged one of the committee members, "and that's something we're concerned about."

What's the payback period? Sixteen years, if it is done as a straight one-time investment of capital with no financing.  One software salesman in the audience expressed incredulity that anything like that would be considered, since in the private sector people are looking for 18-month payback periods. And the committee agreed that a 16-year payback was pretty bad and not something they were interested in, but pointed out that there are potential financing options available that could result in lower-cost electricity from day one and would not necessarily require a capex/payback calculation -- all of which is still being learned about and thought through. The town simply may not have the wind resources to make it an attractive project, regardless of neighborhood concerns.

How much town money has already been spent on this?  None. It's a volunteer committee and the feasibility study was paid for by the state.

In the end, everyone there had an opportunity to say their piece, and it was all within the context of this volunteer committee still digesting the feasibility study. For the most part, the concerns raised were valid ones that the committee was also wrestling with. I didn't hear any concerns that were strictly political or anti-green; in fact, the opposite was true -- some in the audience expressed strong support for the goals of the committee even while they were worried about this particular potential project. I thought it was a really fascinating look at wind project siting issues in local communities.  

More broadly, NIMBY ('not in my backyard') issues are not going to go away in the U.S., nor should they just be dismissed as being uninformed or unimportant. These concerns expressed at the meeting last night were for the most part well-founded, thoughtful and understandable. Yet I've seen renewable energy proponents, entrepreneurs and investors sometimes failing to give NIMBYism enough consideration in their processes of idea creation and evaluation. Anyone hoping for a "tipping point" where Americans will eagerly welcome large renewable energy projects in their backyards is probably engaging in wishful thinking.