Information-based cleantech is an emerging "next big thing" in the sector.

During most of the last decade, cleantech VCs were putting a lot of capital into the production of physical commodities -- proprietary ways of turning photons into kilowatt-hours, or biomass into liquid fuels, etc. It takes a lot of capital and time to successfully bring such commodity-production innovations to market. And then, after all that time, effort and money, you're chasing commodity price curves. This isn't to say that there haven't been and won't be successful efforts in such investments. But it's unclear how these investments fit the traditional venture capital model, and indeed a lot of capital has been lost so far pursuing this approach. So cleantech investors are increasingly wary of putting yet more venture dollars into such efforts.

But meanwhile, investments based upon IT and web-based technologies and models are getting a lot of attention in this sector -- and for good reason. They can often get into the marketplace faster, with less capital required, and can iterate improved versions more quickly as well. And unlike commodity-based investments, some of these information-based cleantech plays can harbor potential for the kinds of positive network externalities (i.e., virtuous cycles) that have historically driven the outsized returns VCs crave.

I see three basic models for information-based cleantech:

1. Disintermediation

Existing channels and markets for energy, water and materials are quite often decades old. They operate inefficiently, through intermediaries who aren't very good at (and often have no incentive to get good at) figuring out how to incorporate new clean technologies into their offerings. But they're deeply entrenched as key channels, market makers, etc., in these markets, because of existing relationships, and lack of information available to customers, as well as regulated restrictions in some geographies. Those first two factors are ripe for cannibalization by web-based approaches. We're seeing an increase in B2B cleantech-focused purchasing platforms, B2C e-commerce sites, and other examples of disintermediation in action. Basic market creation and market reinvention is badly needed in these sectors -- and if done right, it can engender some really attractive positive feedback loops.

2. Data as a service

Our energy system and our installed base of energy-consuming equipment are stupid. But they're becoming more intelligent, as sensors and communications become cheaper and more widely available. This intelligence allows gathering and use of massive amounts of data, for monitoring and verification of performance of everything from drinking water infrastructure, to individual solar panels in a solar farm, to distribution assets in the electric grid.  

Some very basic information is also missing from cleantech and incumbent energy markets -- cost and performance data for buildings and building technologies, for generation technologies, and even for financing options toward purchases of all of the above, for example. Because it's very hard to gather the info and make it consistent. (For instance, just try to find accurate and reliable information about cost and performance data for commercial lighting fixtures.) You start to understand why so few buildings adopt available energy efficient technologies, even when it would save money: because it's just too hard to figure out the right answers. There's room in a lot of cleantech sectors for efforts to standardize and aggregate information about systems, both installed bases and new technology offerings. This data could be used as a lead-generation approach for cleantech equipment and services, as well as for providing benchmarking and other data services in their own right.

3. Automation

Once we have the data related to energy production, distribution and consumption, the next natural step is to make optimization of these activities ubiquitous and automated. Software-based approaches for automated load control in major industrial facilities; conservation voltage reduction based upon immediate grid conditions; smart homes; smart irrigation -- these are all examples of how information plus automation can lead to significant resource and dollar savings. And as automation becomes standardized, those who create the standards will greatly benefit.

If these three models seem pretty familiar, that's because they're old news for anyone familiar with the IT industry's evolution over the past couple of decades. Heck, I stole the term "disintermediation" from a b-school professor I had back in 2000, when Orbitz and "clicks and mortar" were the hot new things. And yes, I think that energy and water markets are basically at least 10 years behind other industries when it comes to the use of IT to reinvent how the markets operate.  Which is good news, because it means we have lots of room for such reinvention, and even something of a roadmap for how to make it happen.  And it means there are lots of entrepreneurs out there who will consider these business opportunities to be "old hat," and will be deeply experienced in making them work in other sectors.

Even at the intersection of the physical commodity market and the IT world, there are lots of opportunities to be had.  Making solar panels smarter will reduce installation costs and thus move us that much closer to grid parity.  Building intelligence into lighting fixtures helps us not just make the bulb more efficient, but also makes sure we only use light when and where it is actually needed.  Cleantech startups of the commodity-production variety are all seeking ways to differentiate themselves and try to get out of the commodity-pricing cycle that has driven down solar ASPs and now wind ASPs (and at some point, biochemical prices) more rapidly than many expected. Look for them increasingly to seek ways of using information-based services as a source of differentiation.

I'm seeing a big wave of such thinking in the cleantech venture sector. This, I believe, is one reason why cleantech venture capital deal dollars are so significantly down right now, even while deal counts stay fairly consistent -- investing in information-based cleantech can be much more capital-efficient than the types of investing we saw more of during the past decade. And I'm even seeing an emergence of new funds -- and a rebranding of existing funds -- to explicitly go after this concept.

On a panel a few weeks back with some fellow cleantech investors, I offered the opinion that there were a lot of opportunities to invest in cleantech that weren't inherently capital-intensive. My fellow panelists mostly disagreed, or they told me that I was only talking about a really small part of the cleantech market. Well, I think information-based cleantech is going to be the Next Big Thing in the cleantech sector.  I guess we'll all have to wait and see who was right.