It's been pretty fascinating to watch how many strong opinions have been expressed over the past couple of days regarding Fred Wilson's "two VCs" post (and then some others pointed at me after my response to his post). So I thought I would paraphrase some of what I heard (note: mostly NOT from Fred, but from others who've piled on) and give some replies.
Rob, are you saying Fred is wrong?
No. I totally agree with Fred that there's an important divergence of two very different approaches to venture capital right now -- the lean VC (put as little capital as possible to work in each company, grow it quickly and as low-cost as possible, and then sell it as early as possible), and the big VC (find winners, give them even more momentum via advice, capital and brand leverage, and drive to as big an exit as possible).
If anything, I tend to favor the lean VC model Fred is clearly espousing. I do think venture capital is due for a re-invention (or a back to basics, as others view it).
I just don't think it's fair to imply (as Fred and many others have done) that ALL of cleantech venture capital falls into the "big VC" category.
To put my point as simply as possible: Fred is right, there are two separate venture capital industries right now. And you can find BOTH within cleantech.
But statistics show that cleantech is more capital intensive than web investing!
First of all, don't try to apply averages (especially in the form of means and not medians, c'mon Techcrunch you can do better) to "prove" anything about cleantech as an overall sector. As we've discussed ad nauseum on this site, all it takes is a small handful of megadeals to totally skew the sector dollar totals, so means are worse than useless, and even median deal sizes will reveal only that 51% of deals are large ones, right? It doesn't prove that there isn't any capital-efficient investing going on within the sector.
Secondly, it's a little tiresome to see all these web and software journalists and investors castigate cleantech in such simplistic terms (maybe they're all too distracted by AngelGate). Don't get me wrong, I like the web (in fact, I'm using it right now!) and have nothing at all against web and software investors, it seems like a compelling set of markets. I don't paint their entire sector(s) as one single monoculture, so I wish they would do the same.
As Tom Pincince, President and CEO at Digital Lumens (and former Director of Forrester Research’s Network Strategy Service) emailed to a few of us: "Cleantech is such a diverse category ranging from biofuel to consumer power portals. We could just as easily lump software into IT and drag in big networking boxes and telecommunications companies."
Thirdly, while some of the rhetoric around "capital efficient cleantech venture capital" is just empty words, I do think there are a number of investors out there putting serious effort and thought into how to do it. So backward-looking data will only tell us so much about what the sector looks like going forward.
How dare you say cleantech isn't capital intensive! Just look at the high-profile capital intensive deals that have been talked about so much!
Just like how I don't think it's fair to paint cleantech with a broad brush and imply it's all capital intensive, nor am I trying to make the argument that all of it is capital efficient. In fact, if you look at the deals done in cleantech from 2006-2008 (ish), much of them were indeed capital intensive.
But I increasingly see attempts to apply the "lean VC" model within subsectors of this market. And even within some of the sectors of the market that are infamous for being capital intensive (e.g., solar).
But making a significant impact on the energy, etc. industries will require some significant capital to be deployed.
Sure, but why does that have to be venture capital in particular?
Venture capitalists are supposed to be focused on returns, not impact. Often they conflate the two, especially when standing on stage at a conference. But it's increasingly unclear that VCs are supposed to be the ones providing all the capital that will be necessary to put significant amounts of clean power generation out