• Friday, November 20, 2009 Latest Update: 4:41PM
Rob Day | September 25, 2008 at 1:20 PM 1 Comment

Betting on the ponies

I was speaking with a member of the limited partner community today, and I mentioned an analogy I’d come up with to try to explain what’s going on in the cleantech market right now.

“There are four ways to try to make money at the race track,” I explained. “The first way no investor will admit to, but sometimes does happen—it’s showing up and just walking up to the betting window and picking a horse because you like its name or that they’re the favorite or the owner is your friend.”

“The second way is what a lot of bigger venture funds aim to do—showing up, walking into the stables, checking out the horses with an experienced eye, talking with the jockeys, and making some informed bets.  But betting on a lot of different horses, and not expecting to spend a lot of time with any individual one, in order to maximize the chances of betting on an eventual winner.  It only works if you know your way around horses already, however.”

“The third way, and the one I happen to like personally, is to be the horse trainer, picking a few horses with good potential and helping them become champions.  It’s more hands-on and takes more specific expertise, but again hopes to maximize the chances that the horse you’ve backed is an eventual winner.  It’s a tough strategy for a newcomer to jump into, however.”

“The fourth and final way is a bit of a stretch, but the idea would be an investor watching and waiting until the race enters the final turn and then trying to bet on the leader then.  You’d have to pay a high price at that point, but at least you have a better chance of backing a winner.”

“It’s this last approach that’s been driving much of the money pouring into the cleantech sector recently, since it doesn’t require being an expert at horseracing to be able to pick likely winners, and so it’s become a crowded approach right now.  That may be one reason why some later-stage deals have been at such high valuations.”

The investor I was talking to listened patiently to my (admittedly pretty lame) analogy and then simply pointed out that there is a fifth way to make money:  Own the racetrack.

Touche.

Comments [1]

  • Sherry 09/26/08 2:37 PM

    Our country is going to **** in a handbasket.  The high cost of fuel has driven up the production and shipping cost of everything. Consumers have nothing left over after filling the tank and paying more for the necessities of life to spend on extras, save or invest.  We need to get ourselves out from under our dpendency on foriegn oil.Just as gas prices start to fall slightly and we felt like there might be hope along comes Ike and causes them to spike to an all time high. Families everywhere are wondering where else they can cut back to cover the cost of fueling up the family vehicle to get back and forth to work and take care of the necessities of life. There is no money left for relaxation and family fun. The stress level continues to rise. Most areas of the country have seen a sharp rise in their electric bill as power companies pass their increased production costs on to consumers. The cost of every consumer product has risen sharply. Americans are stretched to the limit. Jobs are being lost, foreclosures are increasing at an alarming rate. Seems even the family pets are suffering the high cost of fuel as almost daily a sad new story is on TV about shelters being forced to euthanize record number of surrendered pets from those forced out of their homes due to foreclosure or they simply can’t afford to feed them anymore. The energy crisis in our country is far reaching and needs immediate attention. Our economy is in a sorry state of affairs directly related to the high cost of fuel. We have become so dependant on foreign oil that we have neglected to fully utilize such natural sources of energy such wind power & solar power. Along with modern technology such as plug in cars, hybrid cars, v2g technology ,and regenerative braking, technology we still seem to be floundering as a nation as to devising the best plan utilize all that is available to us and lift ourselves out of this mess we are in. We need to take o ur closest look at which candidates put our economy and energy crisis at the forefront of their agenda. There is a new book coming out soon called…The Manhattan Project of 2009 by Jeff Wilson.

    Reply

Cleantech Investing

Rob Day is a Boston-based cleantech venture capital investor and entrepreneur, and is also the President of the Renewable Energy Business Network (REBN). The views expressed on this blog are those of Rob and his friends and colleagues, not necessarily the views of REBN or Greentech Media or any other group. Contact Rob Day at: (JavaScript must be enabled to view this email address)

.