Like many of my cleantech investor colleagues, at one time or another I've ended up spending some significant time on opportunities in the green building materials space.  Green building markets in the U.S. are expected to triple by 2013, LEED certification is becoming a de facto requirement in some sectors and regions, and since buildings are responsible for something like 39% of all energy consumption in the U.S. any materials that can impact that have a big potential economic opportunity.

I was having a conversation with an experienced realtor this weekend, and mentioned green buildings to her.  "Oh, I worry about those," was her response.

First of all, she worries about untested materials having some kind of unforeseen unhealthy effect, like releasing formaldehyde.  She brought up asbestos type fears. 

Secondly, she described how when she had bought a house some years back, it had some kind of advanced siding material (I'm not even sure if it had any green attributes at all).  The material worked as advertised -- it held the paint well, she never had to repaint the house, and she thought the siding did protect the house from any interior damage.  But unfortunately, the material developed small (sounds like superficial) cracks, so she ended up replacing all of it.

But most importantly, to the realtor this all came down to impacts on price.  Impacts on price from perceptions that may or may not have a real basis in fact (ie: the formaldehyde fears from above).  And in the case of the house she bought with the new siding material, she described how she drove down the price of the home when negotiating with the seller, because "this stuff is horrible!"  The advanced materials didn't add to the home's value, they detracted from it.  Because of flaws that sound like they were more superficial than real.

I think VCs sometimes have a tendency to become convinced that early adopters of a new technology presage mass adoption in short order.  Certainly in some high-end residential and commercial markets, new green building materials are seeing really good adoption even in a down market.  And I do think the long-term market opportunity for green building technologies is strong. 

But my conversation over the weekend was a good reminder that there are some serious challenges in getting the main body of the market comfortable with any new tech or materials, green or no.  And that if there's a chance it'll negatively impact pricing, most developers won't want to touch it. 

VCs investing in green building techs and materials will therefore need to take special care to make sure they're not just investing in something that will be simply a high-end niche product.  That means not just validating the economic value proposition.  And it means not just double-checking that there's nothing unsafe about the materials.  It means also working hard to evaluate the market's perception of and openness to the product, to understand just how difficult it will be to introduce the new product to the channel.  Even if it's cheaper and works better and has a few early "wins", it still may see very slow adoption.