Yesterday I had the pleasure of being one of the judges of the New England regional finals of the Cleantech Open, an annual nationwide cleantech business pitch competition.  I never get to do as many of these as I would like to, as it's always fun to see entrepreneurial efforts when they're still so new, and these events are also good for catching up with colleagues in cleantech investing (since so many of them also serve as judges).

As I was sitting there listening to the third of three pitches I saw yesterday, I was really struck by an emerging pattern, perhaps most starkly visible to me in that forum but also -- I realized -- prevalent in many pitches I receive these days...

I'm seeing a lot more components these days, not full companies.  Especially in early stage deals.

I'm increasingly getting pitches from entrepreneurs where they have a neat technology, but they either don't realize or don't want to deal with the fact that there's going to have to be a much broader service and product offering in order for that technology to make any sense.  It's great to see someone come up with a very cost-effective photobioreactor for growing algae, for example.  But where's the concentrated CO2 going to come from?  Who's going to dewater and use the algae?  Who's going to monitor and service the bioreactor?  Etc., etc.  In many cases, these entrepreneurs are assuming the eventual emergence of a robust industry around them, but one that doesn't yet exist.  That would be like launching Zappos back when the intertubes was just ARPAnet.

That's not to say, however, that anyone with a component-level innovation needs therefore to weave an entire value chain within one company.  We've seen plenty of that already in areas like biofuels and solar.  And it's expensive, and dilutes any advantages of the core innovation.  I've seen companies that have a "tweak" that improves efficiencies within PV cells, and are looking to build an entire fab and manufacture branded PV panels instead of partnering with existing fabs.  I've seen companies with a proprietary distillation technology try to build entire standalone biofuels production efforts.  Yes, sometimes this is the best way to create capture value -- it can be necessary to prove out the tweak, or perhaps the "tweak" is actually a really critical pain point, or perhaps the company's VCs are pushing them to be bigger (ugh) and more aggressive.  But it shouldn't be a very first option pursued, because it's really hard, and failure in any one part of the rest of such a complex effort can obviate even the most compelling of proprietary innovations.

More on this topic in the next post...