Just stepped out of a great RFK Compass event, where I took the opportunity to deliver some of my current message to the limited partner community in person. And it occurred to me that, while I've put bits and pieces of the thesis into past columns here on this site, I've never really explained how we at Black Coral Capital are ourselves tackling the next great cleantech investment opportunity -- and you might want to know whether we practice what I preach. I've been reticent to turn out a column that's a blatant self-advertisement, but if you'll forgive me this once, I'll lay out what we're aiming to do and then you can all judge our performance over time... 

As background, we started Black Coral around 4 years ago as a blank sheet of paper, trying to answer the question "if you actually wanted to make money in the cleantech sector, what would it look like?" We had a conviction that there was a huge macro-opportunity here, but also a recognition that none of the GPs in the sector (myself included) had yet proven that they knew how to reliably make money investing into these opportunities. We also were fortunate enough to have secure capital in place and didn't need to go out to the limited partner community as a first-time fund.

So we embarked on a period of some experimentation and network-building, to accelerate our learning directly and via others. I come away strongly believing that there will be multiple "correct" answers here, several different strategies that will make money over time (and you can see some of my earlier thinking on this here, which surprisingly has not yet grown stale).

Important additional context for our team in particular, then, is that we have from Day 1 believed very strongly in finding and backing only the very best management teams, using a very rigorous methodology borrowed from elsewhere in the private equity world. And also that we wanted to take advantage of our flexibility, rather than to try to "out Sand Hill Rd." the various Sand Hill Rd. denizens. They're smarter than we could ever be, so we should try to do what they can't or won't.

Over time, this has led us to really focus on tech-enabled and non-tech execution plays, and to avoid commoditization cycles wherever possible (but in fact, where possible to take advantage of them). Our view is that venture capital investments into clean technologies have been very successful over the past few years, in terms of bringing to the market new technologies that are capable, reliable and cost-effective. But that the market hasn't been ready to rapidly adopt those technologies. Thus the adoption cycle remains too slow for capital-intensive, high cash-burn commodity producers to get down their cost curve before they run out of runway, in far too many instances. (And thus, the lack of compelling investor returns in the sector)

So from our perspective, the opportunity now lies in market reinvention. Figuring out how to accelerate how people buy, sell and deploy these new technologies, in scalable ways.

This requires a new type of investment thinking, at least as applied to the cleantech sector (although it's really old-hat in some other venture investment sectors).

It means focusing on new business models, not solely on breakthrough technology innovations.

It means finding strong executing teams as a first-cut investment criteria, not as a secondary consideration after sectoral thesis and proprietary IP ownership.

It means being perfectly okay with "stealing" good ideas that are already well-understood from other sectors (e.g., web-based marketplaces) where they are applicable and adaptable to these change-resistant markets.

It means finding world-class teams who are tackling difficult market adoption challenges, with technology or non-tech solutions; and those solutions cannot be "but we can make it cheaper than anyone else" as the major point of differentiation.

In many cases it means finding teams that have developed advantaged innovations, but who then seek to control their own destiny;  so they themselves deploy those innovations downstream (i.e., embedded controls vs. standalone) rather than trust that a market will emerge downstream smart enough to value and reward them for their efforts, at least in the near term. Bundling their innovations into a full market-ready solution, in other words.

It means being open to growing, and then using that scale to drive new innovation into the marketplace; not the other way around.

And it means sometimes being a "VC," sometimes being a project finance investor, and sometimes investing in entirely different business models and investment structures than either of those two approaches would typically back.

It also (along with the make-up of our team) steers us away from opportunities with major science risk, because what's the point of going through all the trouble of vetting a high-execution team if execution isn't really in their control anyway ("sorry, but the bugs died in the test tube").

A lot of the market is shifting in this direction over time, and certainly various parts of this approach are already being deployed by various firms out there. Everything I describe above is in fact where VCs have made a ton of returns over the years, in other sectors (think about how the dot-com revolution was really market reinvention surfing the wake of a prior wave of IT/telecom hardware commoditization).

But in cleantech, I don't see this approach being deployed comprehensively, consistently, and in practice the same way we do, so we don't yet see any existing investors for us to simply dovetail behind. So we'll continue to focus most of our efforts on our direct investments versus our LP activities, at least for the time being.

And while it remains early days, our early results have been quite positive. While I of course can't divulge many details of our portfolio performance to date, I can tell you that across our entire portfolio last year we saw revenues grow 84% year over year. We don't have the ultimate evidence yet in terms of a lot of realized exit activity, but we feel we are at least helping great entrepreneurs build solid businesses and we are hoping that helps lead to strong results.

But we shall see. Apologies for the self-advertisement post here, but rather than simply describe parts of our thesis I wanted to lay it all out one time. Because now it's time for us and others tackling the reinvention of cleantech investing to start not only showing some results, but showing our work along the way, so that everyone out there has a framework for understanding the results over time.

And to be clear, I think there are other really interesting and potentially valuable (and completely different) approaches being attempted out there in the marketplace. I've seen some really smart approaches to backing "black swan" proprietary technology R&D efforts; to project finance; to subsector-specific efforts; etc. I would encourage these other investors to also lay out their theses (here's one!).

Because I think we're going to start seeing some compelling but early data points about the validity of these new approaches to cleantech investing, and we all need to understand the frameworks underlying them or it's going to simply appear as some randomly-generated success stories in a sector otherwise still dominated by v1.0 type thinking (amidst a lot of continued v1.0 shakeout).

Let the cleantech investing revolution begin. And let it be televised blogged. 

Stopped by the Cleantech Investor Summit out in Palm Springs this week -- meant to stay through for the entire event, but Nemo forced me to scurry back to Boston on an earlier flight.

Ira and his team always do a terrific job of running that event, it's always a good networking opportunity and they get big names to come speak. And Tesla test drives, of course.

But it seemed to me like yet another missed opportunity. With so many cleantech investors and their ecosystem partners under one roof, it would have been great to see more exploration of the emerging "next wave" of cleantech investing strategies. Instead, most of what was presented was what I call "old Cleantech VC": capital-intensive upstream technology bets. 

Until recently, such investments really defined "cleantech venture capital," in the eyes of GPs, LPs, the media, and entrepreneurs. But over the past couple of years we've seen the emergence of a few different takes on the sector, and it's time we had a major industry event really explore these kinds of strategies.

I would love to see a full-day event where a few innovative investors were given the platform to present their strategies and analyses in short plenary talks. Matthew Nordan to present some of his quantitative research into cleantech venture returns and key success factors. Sunil Paul to present his Cleanweb thesis. Whitney and Scott at McRock Capital to present their intelligent infrastructure focus. Sarah Wood to discuss her efforts working with family foundations to promote program-related investments (PRIs). US Renewables Group to present their more project-finance oriented approaches. And yes, one of my colleagues at Black Coral Capital to present our market-innovation (vs. tech-innovation) approach and our collaborations with other family offices. As just some examples among others.

In between these presentations, there could be presentations by some of the startups and established companies that are touchstones and early examples of these approaches. From bigger companies like Tesla and EnerNOC and SolarCity to earlier stage companies like Noesis and Sidecar and Propel. They could present their businesses, but especially their capital strategies and how they look to interact with cleantech investors in the new era.

We're all working hard to reinvent cleantech venture capital, with an eye toward returns-producing investment strategies. And there won't be one right answer, there will be several, it seems to me. But at just about every industry conference I go to these days, most of what's discussed is the old paradigm, with companies that were funded that way but couldn't get funded that way today.

That's not looking forward, that's looking backward. And I think our industry would be well-served at this point to have a real forward-looking event, so we can kick-start more of the necessary conversations about what's next. Those conversations, plus some good results starting this year from these new approaches, would be what would unlock LP interest in the sector. And that's necessary, because it's the LP community's utter disinterest in cleantech right now that's the limiting factor. 

I've never seen better entrepreneurial teams in cleantech. I've never seen more interesting, pragmatic business plans. The underlying markets are growing strongly and seem poised to continue to do so. The large corporates seem more serious than ever about getting into cleantech with strategic intent. The one missing, and yet vital piece is the venture capital dollars, and if the LPs aren't giving any capital to the VCs, the VCs can't put any money into this next wave of startups. 

We're not going to fix that by fixating on the old paradigms of cleantech investing. So it would be great to see one day that gets a lot of attention focused on potential next paradigms for cleantech investing.

Cleantech investors are commonly approached by very early stage entrepreneurs. And by "very early stage," I mean garage-based-inventor stage. In many cases they're not directly looking for funding from my firm at their stage, but they're looking for advice on how to raise seed capital.

We all need such entrepreneurs to succeed. Their innovation and enthusiasm is the lifeblood of our sector. And so while it's gratifying to encounter such innovators, it's also frustrating to find that so many are having a hard time getting started. And I have come to believe that in many cases these innovators are having an especially hard time because they're not looking for the right thing. They shouldn't be looking for seed capital, they should be looking for how to turn their idea into a business. The funding follows after that.

Below are some suggestions that I hope will help such innovators turn their ideas into a real business. This is a lot easier said than done, especially on limited capital and during limited available hours. I've been in this position myself, and I know there are real constraints on what can be done. So the most important watchword here is "patience." The below process can go relatively quickly if you have a lot of time and no financial constraints, but it can also be effectively tackled over time, on the cheap and with limited bandwidth. Just don't expect it to happen overnight, or you're not being thorough enough. It's highly unlikely that these antiquated, slow cleantech markets will move too quickly and pass you by while you're prepping; but it's much more likely that if you go out there not yet fully prepared, you won't make any headway. Be patient.

So with that in mind:

1. Attack your own idea. Why won't it succeed?

The general sentiment experts and investors like to pass along to early innovators is that they must be unmitigatedly optimistic, that they must simply will themselves to succeed and refuse to take no for an answer.

True enough. But there's a time and place for everything. And you should shoot holes in your own ideas before someone else does. The best way to do that is simply to ask yourself tough questions and then gauge your answers on your own personal bullsh*t meter.

Questions like:

"Is this a solution in search of a problem, or is this idea of mine generated by a very real customer (i.e., not society-level) problem that they'll pay someone to solve?"

"Is this a good idea but aimed at customers or a market that simply aren't accepting of new innovations?" 

"Is this a good idea but one where it will take more capital to succeed than I can realistically access?"

"Is this a good idea but one where it will take skills and talents that I don't have and can't access?"

"Do I have time for this? Or am I hoping to just hand it over to someone else to execute for me?"

"Do I have any special advantage that means I would be able to succeed at this even if others also have the same basic idea?"

"Is this something that someone in a national lab or in Silicon Valley or at a university is probably already doing?"

If you end up losing faith in this particular idea, that's still a victory, as long as you then work hard to develop another winning idea. But hopefully what you find is that you have a revised idea you truly believe in, and you're now completely honest with yourself about the obstacles to bringing it successfully to market. I'm a big believer in optimistic entrepreneurs, but there's a difference between optimism and fooling yourself.

2. Decide if you are going to develop a component, or a full solution.

This may seem like a value-laden question, but I really don't mean it that way. These are two equally legitimate pathways.

Is your vision that your innovation is incorporated into other people's products or systems? Are you looking to license it for others to manufacture? These can be financially-successful and commercially-successful paths, requiring much less capital in many cases, than the decision to take on building out a full solution. Are you a battery management innovator who will license an innovation to Tesla, or do you want to take your battery management innovations and use them as the basis for building a new Tesla? The reason to figure this question out for yourself in the early going is that it will dictate a lot of other choices further on. For example, many innovators too quickly assume they need venture capitalists to back their effort, and yet VCs typically want to back full solutions with lots of capital, not capital-light component development and licensing plays...

Generally, I would urge keeping things very simple as a first-time entrepreneur. First-time entrepreneurship is ridiculously hard, and many entrepreneurs find better success their second or third time around after a lot of lessons learned. So to borrow a concept, think of your first entrepreneurial effort as the task of putting out there a "Minimum Viable Entrepreneur" and then failing a lot very quickly so that you can iterate quickly. That's a lot easier to do if the business you're trying to start is as simple as possible. To innovate around a battery pack and license it to an automaker requires several skills. To successfully launch a brand new automaking company requires ten times as many different skills areas. 

3. Recognize that at this stage, it's all about the customer proof points and the prototype.

You may have a lot of confidence in your idea, but really that doesn't matter much. What matters a lot more is that customers say they want a solution like this when it's ready for them, and that you have some serious prototype that you can show to people and give them confidence in your idea.

You can't learn what you need to learn about prospective customers via web searches. Find people from your prospective customer group, or who work with your prospective customer group, and buy them a cup of coffee and informally tell them about your idea to get their reactions. Don't go straight to the top, go to people who have the time to give you thoughtful answers. Ask them about whether this type of innovation would be welcomed or not (you'd be surprised how many innovators want to sell things to utilities and yet really don't understand why utilities actually buy things, for example). And especially try to learn about what pains and frustrations they experience, that might be relevant to your idea. Building in such solutions can be invaluable. Most of all, leave the door open to follow-up conversations once you have something to show them.

And build that something to show them. To the extent you can with the limited resources you have, build the sucker. Too many innovators go out and seek funding armed only with drawings and computer modeling.

- Perhaps you have to do it at a much smaller scale because of costs and physical constraints;

- Perhaps you have to build something that demonstrates only a portion of your idea;

- Perhaps you need to use mostly off-the-shelf components to show what your envisioned proprietary solution would eventually do a better job of;

- Perhaps you simply are launching a service business and can actually do the service yourself for someone; or 

- Perhaps you are launching a web-based business and your first test site is built using free hosting and web design tools, doesn't look very snazzy, and is built on a very incomplete database

Whatever you have to do, build a version of it that you can show to people. A version that actually demonstrates the potential effectiveness of something, not just an illustrative model or mock-up.

4. Write a business plan.

I know, I know, conventional wisdom now says that writing a business plan is a waste of time and effort. I disagree. Writing a very pretty business plan with lots of jargon designed to impress an external audience is a waste of time and effort. But the actual thought processes behind writing a business plan are invaluable, at least for first-time entrepreneurs.

What this really does for you is it forces you to get down to brass tacks on all of the various parts of your potentially-good idea that you have previously glossed over or just assumed away. Successful entrepreneurship requires many things, but one of those is definitely the ability to execute on an overwhelming number of specific tasks at a detailed level. Especially if you're not a "details person", the forcing function of having to think through the plan of action in a comprehensive and deep way is very useful. 

But do it for you, not for an external audience. Save the high-falutin' jargon for your eventual investor deck or customer pitch (and maybe skip it there, too). Don't worry about the format, about getting the structure just right, or even good grammar. Pick any old suggested template; it really doesn't matter. But take the time to think through your full business in as detailed a way as you can think of, and take the time to write it down, and take the time to keep it roughly updated as you think of areas you forgot or you change your plans. Because when you do go out to external audiences, while you won't show them this document, writing it will be what makes you sound very thoughtful and pragmatic when you pitch your otherwise crazy idea at someone in hopes of them giving you money.

Network with a lot of other entrepreneurs to the extent you can, and try to find a good experienced entrepreneur who's willing to give you regular advice. Consider an accelerator program like the Cleantech Open. Learn good business planning as much as possible from others who've done it in the past, rather than from your own blank slate.

This is not a budgeting exercise. This is a war plan. Numbers are part of that, but it's more about discrete tasks and objectives in a comprehensive fashion. If you're doing it right, you'll likely discover you've been ignoring pretty significant areas of activity that any real business must have... And if you're doing it right, you'll figure out how much money you actually need to raise to make your idea a reality, rather than the typical guessed-at large round number.

Even if your business idea is to get something to a prototype stage and then hand it off to someone else to commercialize, write up the details of that plan, however simple. Because you'll discover it's not so simple after all.

5. Find your team.

I've found that many innovators are pretty self-aware and know of several key skills areas they don't have and will need to bring on board. But they really don't know what to do about that. It's difficult to impossible to build a team by recruiting people you don't know, before you raise money. And yet most innovators, especially first-time entrepreneurs, don't have an a priori team around them. So many innovators punt on this and simply tell themselves (and prospective investors) that they'll hire senior people into various roles after getting capital.

The problem is, unless you have identified full- or part-time managers for crucial areas, it's hard for any investor to write a check. They want to know the team they're backing. So punting is ineffective.

The answer is to rely upon all the networking you've been doing from the above steps. As you've been talking with prospective customers and partners, and with other entrepreneurs, see who can get to be passionate about your idea. If you need other skills you haven't encountered yet, figure out where those people network and go there, looking for good listeners. With those people, meet with them several times if they're willing, and if you see a good mutual fit, try to soft-recruit them. By which I mean get them fired up about joining your effort when you get funding, so that you can bring them into your pre-funding planning process, and also tell prospective investors about them.

You'll need full- or part-time managers for all the really critical tasks. But there are a lot of other necessary but not as critical areas of entrepreneurship, so also recruit advisors/mentors who can help you know what to expect but aren't anticipated to put in more than an hour or so every other week. And don't forget -- you'll also need someone to do all the actual work. If you're going to CEO this effort, you'll end up spending a lot less time in the lab yourself.

Remember, you're potentially trapped with these people for 10 years or so. So don't fool yourself about your skills gaps, their skills gaps, or that you might quickly discover you can't stand each other. Again, be patient and let relationships develop over time in an iterative way.

You don't need a full team before launching your business, but knowing more of the pieces than just you alone is part of the necessary planning and credibility-building you need to do before approaching funders.

6. Approach funders.

Aha, finally we're to the point of this column, right? I hope that's not what you're thinking, and if so prepare for disappointment. Getting funding is a result of building a great (albeit fledgling) business, not the other way around, and I hope that the above steps are helpful in that regard.

But at some point you'll likely need some capital. So in this period where early stage venture capital is hard to find, where should you look? In all likelihood, the underwhelming answer is grants and local angels.

At this point you hopefully know how much capital you need to take your idea to the next step, and hopefully it's not a huge amount. So note that for anything under $1M, venture capital is likely not a good fit. Even early stage VCs typically don't want to write a bunch of smallish checks out of >$100M funds, because it's a lot of management overhead for them. And there really aren't that many early stage venture capital deals done in any case, versus the number of good ideas out there, so just the numbers game alone says that VCs are likely not your best source of startup capital as a first-time entrepreneur who doesn't already have a relationship with any VCs. Never say never, but grants and angels are most likely the way to go.

And for both of these capital sources, focus mostly on local targets, because they tend to really focus in on their regions. There are actually a lot more grant opportunities at the local level than you might think, but many innovators focus just on the higher-profile national opportunities (like ARPA-E, etc) that get a lot of attention. But I've worked with grant-making bodies from Massachusetts to North Dakota and I can tell you that many states have some kind of entity with a small (<$1M check) capacity to support early stage entrepreneurs and/or technology innovators -- it may not be a cleantech-focused entity, mind you. Furthermore, there are often resources attached to universities, as well as non-profits like MassChallenge and the Cleantech Open, who have some limited financial resources for program participants/winners.

If you need millions of dollars to make your prototype, you're probably not thinking creatively enough. And if you don't need millions of dollars for this first step, do a lot of research to find what local grant-making resources there are that are available to you.

And angels are all around you as well. There are angel groups all over, and online. Without doing the above process it may be difficult to break through the noise to get the attention of angels even when you find them; but with a credible plan your task is to network to an angel investor (or three) who share your passion and your vision for the business. Don't just fire off an executive summary to an angel group email address, use LinkedIn and other resources to figure out individual angels and go talk to them. Even when they're not a fit (which is likely), ask them about other angel investors you should track down. Don't ask them for an endorsement or even a referral unless they want to do so, because investors of all stripes are wary about burning relationship capital in this way when they don't really know someone that well. But just good solid leads for you to track down are quite valuable.

Think globally, but fundraise locally.

The above steps won't be applicable to many innovators, and many more will already know and be actively doing most parts of it. But in my experience, I run across lots of innovators who really don't know how to get started at turning their good ideas into real businesses, and go out to find funding to support doing so. My point is, that's the wrong order of things. Patiently and thoroughly build your business, even if it has gaps at this early stage, and then you'll be in a much better situation when you write a grant application or pitch an angel investor. Which then allows you to focus on local funders with confidence, rather than casting your net too widely.

Network, network, network. Have strong opinions, loosely held. And be prepared to iterate and have countless conversations before you piece it all together. It's hard, but it can be done, and you can do it, even if you've never done it before.

As talk of the "internet of things" -- ie: smart equipment via automation and machine-to-machine communications -- continues to get attention, we're seeing more and more entrepreneurs bringing forth some flavor of idea involving energy-focused equipment controls. Smart-home plays, automated load shifting efforts, smart grid software, etc.

From a cleantech perspective, the basic concept is the same: Using automated intelligence, make hardware save energy spend via optimized usage patterns, and then build other value propositions (e.g., preventative maintenance, more granular data, remote sensing, etc) on top of that core value proposition.

As entrepreneurs tackle a variety of sectors and applications with this concept, however, there's one basic question they inevitably have to ask themselves: How embedded do I want my intelligence? Or to put the same question another way, how much do I want my software- and controls-based solution to be residing within specific hardware devices, vs how much do I want to simply ride over a variety of devices with common set of controls and software? 

Do I just sell software, separate from the purchase decision of hardware? Do I license software embedded into other OEM's hardware, by partnering with those OEMs? Or do I make my own hardware and sell it, but with my software/controls as the advantaged factor?

As we look across sectors and applications, there is no universally correct answer to these questions. But it is hugely important to answer them correctly, as we'll see below. So let's explore some of the trade-offs and key criteria entrepreneurs should keep in mind when addressing this question strategically.

1. How much technical advantage is gained by tailoring specific controls attributes to specific hardware?

This question has to do both with the complexity of the hardware being affected, and how much of the optimization gains are due to technical hardware operations vs. simpler adjustments to usage.

The more complex and intricate the hardware, unsurprisingly, the more you would expect a customized solution for each specific type (brand, model, etc) of hardware would ferret out additional efficiency gains. With solid state lighting, for instance, the differences in power electronics, cooling requirements, voltage choices (ie: run chips hard or easy), types of sensors, etc. are all variables that can significantly affect the ability of a controls solution to drive efficiency gains. The more tailored the controls to that particular fixture's setup, the more efficiency it can drive. You can certainly drive savings by applying a broadly-designed controls system across a wide variety of lights, but you get deeper savings by designing specific controls parameters for the other specific components and configurations of the fixture or bulb.

World-class leaders in battery control technologies, for example, have gained important advantages. Tesla's future growth, for example, is built as much on such factors as on brand awareness.

Contrast to a smart-home clothes dryer, on the other hand. It's a big energy user, but the specific energy-consuming system is fairly simple and standard. Instead, the energy gains to be made are more about time of use and some other choices around usage patterns. This would be more amenable to a separate, broader controls system that perhaps adjusts more in the home than just the dryer, for example.

2. How much existing, standardized equipment interface is available?

Many existing industrial controls standards already exist in the marketplace, for instance with large HVAC systems, other commercial buildings management systems, or factory equipment. These typically haven't been designed already with energy optimization in mind, but you also often don't need to build controls that are linked to specific components within the equipment, because the existing industrial controls they were designed around provide a "doorway" for energy-optimization software to make targeted adjustments.

On the other hand, in just about all segments there are also small niche industrial controls vendors or even just PLC-based homegrown solutions that have some portion of the installed base. If they make up a large portion of the market, you're going to need fairly customized solutions regularly.

3. Are you targeting applications inside or outside the meter?

Utility-facing smart grid software has to interact with hardware in some way. But there's a lot of legacy hardware out there, a lot of utility resistance against new hardware vendors, and a much bigger scale of project, than typical for energy consumer-side applications. System integrators are also more readily available for utility-scale implementations. Generally speaking, therefore, these factors will drive more non-embedded controls on the utility side of the meter than on the consumer side.

Even on the consumer side of the meter, I think we'll see a shift over time toward more common controls standards, even when embedded into hardware from various manufacturers. But utility-side projects are probably more often large enough to support software-only efforts in this regard.

4. How fragmented and receptive are the OEMs and channel partners to partnering with (and paying) controls vendors? 

It's obvious but it's amazing how many entrepreneurs don't really factor this in -- if you're planning on getting your revenues from licensing controls to OEMs, how capable and receptive and scalable are they? You're not going to build revenues quickly if the answers to this question are at all negative.

So, for instance, in the lighting industry some smart entrepreneurs have instead chosen the two other pathways. Some have gone the fully separate software route, designing controls that are intended to be overlayed on any OEM's fixtures. Another, BCC portfolio company Digital Lumens, decided instead to start by building their own fixtures with their own embedded controls, eventually migrating to an OEM-licensing strategy.

Take note of what this implies: The counter-intuitive decision to manufacture hardware as a result of a go-to-market strategy, not the other way around. Per point #1 above, there are obviously operating efficiencies to this stack-integrated approach, but the other relevant factor here is the nature of the channels in addition to the OEMs. In today's lighting market, the channel partners generally don't "get" the economics of lighting controls yet, and in many customer segments there's resistance to paying much for an add-on controls solution (even when the economic value proposition is clear). So embedding the controls into actual hardware and selling the full bundle to customers gives more opportunities to capture the economic value created by the controls, is the theory.

And at least in this case, the theory seems to have held. DL's embedded controls have been installed in 50M square feet, ~10x as many square feet of space as any of the software-only startup contenders over a roughly equivalent period of time. Of course, it's still early days in that industry sector, the full story has yet to be told...

5. How hard is it to make the hardware yourself?

Another obvious one in many cases (why invent a new dishwasher manufacturing company just to sell a proprietary smart-home control system?), but not in all. Contrast EcoFactor with Nest. Both are going after smart thermostat hosted controls in the home, but Nest decided to sell proprietary ones and EcoFactor partnered with an existing smart thermostat manufacturer. Both companies are growing so it's hard to say yet which was the smarter pathway to establishing their controls in the marketplace, but it'll be fascinating to watch the rivalry as it develops.

But of course, it's only an issue because the thermostat assembly itself could be relatively cost-effectively outsourced. For more complex or otherwise costly manufacturing decisions, it's a factor that could skew entrepreneurs toward a non-embedded controls strategy altogether.

Ultimately for all of these software/controls plays, embedded or not, the goal is the same -- to become an actual or de facto industry standard. The decision as to what path to take is primarily one of market entry and early scalability, because the hope for all is that network externalities eventually take over after some critical mass is reached. But this is an important strategic decision for the long run for startups. It affects core and ancillary capabilities they must build into the team. It affects capital needs and revenue models. And as a couple of the examples above show, it can determine whether a startup can outpace the others to become a leader in the race to network externalities, or fall behind and be imperiled. There are other questions to ask when making this decision to embed, license or float above the hardware choices altogether. But the above five questions are ones that we've seen come up repeatedly, across a wide variety of end markets.

After the Cleantech Group released their 2012 cleantech venture totals this past week, I heard a surprising amount of pessimism out there. I saw the sector called a "bust" and was asked a couple of times if the sector is just plain dying out.

Of course not, c'mon people.

First of all, regular readers of this column probably found very little of surprise in the Cleantech Group's numbers. For a while now we've been talking about how LPs have pulled back from the sector and how that has been forcing VCs to pull back from the sector, and in many cases to go find new jobs altogether. Given all this anecdotal evidence, it shouldn't be a surprise to anyone that the retrospective numbers now back these observations with data. The Cleantech Group's tallies were largely just confirmation of what we already knew was going on (with one exception, lower activity by corporates, which I'll discuss below). But these numbers shouldn't have shocked anyone.

Secondly, cleantech markets continue to grow quickly, with little signs of falling off anytime soon.

Here are some examples I found by cruising through GTM headlines from just the past few weeks:

• LED lighting markets continue to grow, amidst a phase-out of incandenscent bulbs and high-profile companies switching over fully to LED lights.
• Q4 solar installations at 1.2GW were nearly 10x what they had been just back in Q1 2010.
• US wind installations were at record levels last year, and the industry just saw the PTC renewed.
• GTM Research expects power utility data analytics spending to top $20B over the next nine years.
• Even lower profile sectors are chugging along -- in the US, geothermal saw its second biggest year since 2005, for instance.

Similar growth is taking place in many other cleantech markets as well, especially non-energy sectors. These are multibillion dollar markets, often among the fastest-growing segments of the US economy.

It is extremely rare to see such fast-growing markets and not see VCs trying to figure out how to put money at work in them. That's why we're not seeing the end of the cleantech sector for VCs; we're just in period where folks (especially LPs) are still licking their wounds from the past decade's failures and lack of exits. What we're seeing is a big pullback from the 2000s-era cleantech venture investment model, which is understandble. But there are other models now being developed and deployed.

Unfortunately, somewhere along the way someone convinced most of the large LP community that the investment model we saw over the past decade was the only way to invest in this sector. Which means they have pulled away from the sector altogether and thus they're not funding the next wave like they should. But investors who do have capital to deploy -- many of whom are not traditional VCs, but instead investors like family offices and others with more flexibility -- are staying active and will generate some new pathways to returns. Exits such as SolarCity's IPO and ZipCar's acquisition and others to come will help demonstrate that there are alternative high-growth business models in these markets than cutting-edge technology development and commodities manufacturing.

I don't think it'll happen immediately, but there's every reason to believe that as some successes with new investment and business models are seen, the pendulum will swing back and LPs and VCs will eventually jump back into the sector. 

So yes, it's not happy times for cleantech VCs and for cleantech entrepreneurs needing venture capital right now. But we knew that. We didn't need the Cleantech Group's report (very well done media presentation by them, btw) to tell us that.

One trend they note that may come as a bit of a surprise, however, is the decline in venture investment and M&A activity from corporates. In each of Q3 and Q4, for instance, the number of cleantech venture deals tracked by CG as having corporate involvement was below 30, the lowest two quarters since 2008. We've been hearing that corporate investors have been stepping up to help fill the gap left by VCs, but how do we reconcile these numbers with that supposed observation?

It could very well be that corporates are now pulling back from the sector as well. But I'm just not seeing it anecdotally. So alternatively, the numbers may reflect two other factors at work.

1. Corporate venture groups generally prefer not to lead deals. Which means they need a venture deal to be led by VCs. If VCs aren't leading many deals, therefore, that will reduce the number of opportunities for otherwise interested corporates to write checks. Such corporates need to more actively network with other investors besides VCs, if this is the case.

2. Interest among corporates may be shifting from some sectors to others. For instance, chemicals and oil companies that have been funding biofuels startups and projects may at this point have a fairly full dance card and be backing off, whereas other large players in sectors like industrial automation and agriculture may still be ramping up their internal efforts. That would also help explain the lower-than-expected corporate M&A activity, in addition to the low corporate venture activity.

The truth is probably a combination of all of the above. But I keep hearing from corporate managers I speak with that their companies are increasingly viewing clean technologies as major topline growth opportunities going forward, so I would assume that would mean they'll be having to buy their way into these new sectors sooner or later. I'll be watching this particular question carefully in the months to come, because it's a curious (and important) trend.

First: Several folks asked if I could post my little Christmas Eve twitter poem. Well, Walt Frick was kind enough to do so here. So enjoy, typos and all! And my thanks to Walt...

It's that time of year again! Time for some prognostications of questionable accuracy, as we head into the new year. 2012 was hard for cleantech investors. Will 2013 be a rebound year? This time next year will we be looking back and smiling broadly at our good fortune?

Unfortunately, that's not what I'm expecting.

Our sector is at a pretty low point right now, and while I do personally believe cleantech is just in the "Trough of Disillusionment" and will eventually rebound, there aren't a lot of factors primed to trigger any upswing in the coming months. So 2013 seems like a "go-sideways" year, off of an already low starting point.

In fact, I think the term "cleantech" will continue to become unfashionable, although some (including myself) will continue to use it in very generic ways. But this will be a year where the cleantech sector gets a lot broader, in terms of where the (limited) activity is and who's interested in it, so that'll probably mean a lot of rebranding and proliferation of other terms as everyone tries to figure out their own renewed take on things.

But my track record on these things isn't very good, so don't get either too discouraged or encouraged by the following predictions:

1. U.S. cleantech deal counts will be flat in 2013 (within 10% plus or minus) of 2012 levels, and dollar amounts will be down.

Both venture dollars and deal counts were down in the first three quarters of 2012 (note: link opens pdf) and Q4 doesn't feel poised to surprise on the upside. Even follow-on funding has been down, but mostly it's the initial investments (Series A, etc) that have fallen by the wayside. This is driven by the significant withdrawal of generalists from the sector, and the reality that specialist VC firms are low on capital reserves. More on this below, but it doesn't seem like LPs will suddenly start demanding VCs invest in cleantech or start making big commitments to the sector, at least in the next few months, and there's a lag time between such shifts at the LP level and how deal volumes flow down through the GP level anyway.

That said, with 2012 levels already pretty low, I don't expect a major decline from these depressed levels either. So I expect a flat year for deal counts. I do think the shift toward smaller follow-ons and more capital efficient first rounds will continue, however, so even with deal counts staying the same I expect dollar amounts to continue to decline. Remember: I always say to look more at deal counts as an indicator of VC interest in a sector than the dollar amounts.

Note that I'm not making any prediction about international venture activity in cleantech. That's because I find the deal tracking outside of North America to be pretty squirrelly still, and I also cannot guess what's going to happen in some of those other markets. Generally speaking, Europe will continue to be an economic mess, BRICs will continue to grow and thus drive demand for "all of the above", and MENA will continue to diversify. To what extent, and to what effect on cleantech? I have no idea.

2. Agriculture-related investments will be the next "new new thing" area for venture investments. 

I don't quite know how to quantitatively define this, but I think 2013 will be a big year for venture investments in the agriculture / food sector, generally speaking. Most VCs I speak with now talk about this as being one of the sectors they're spending a lot of time looking at, and that often results in significant visible dealflow months later.

It would have been easier to forecast a big year for cleantech-related IT and web investments. But while I do think we'll see a lot of noise out of the "Cleanweb" sector in 2013, everyone can already see that coming. I didn't want to just be the 20th person to suggest 2013 will be "The Year of Cleanweb/ Cleantech IT". Whereas I do think Ag/Food might surprise some folks, so I'm highlighting that sector instead.

Interestingly, not all cleantech deal tallies include agriculture in their tracking, so it may or may not show up depending upon which analyst report you're looking at. And for many readers, they may not even consider agriculture and food to be "cleantech" in the first place, except for where it overlaps with biofuels. But regardless of how it's categorized and regardless of what label it receives, this seems like an area where there will be a visible uptick in venture activity -- and probably including a few deals that will make you stop and go "huh?" -- the sure sign of a hot sector.

3. There will be a wave of consolidation and shake-out in solar financing.

The consolidation wave and shake-out in upstream solar (panels, wafers, etc) is now obvious to all, and will continue. But downstream, installations are booming and solar financing is taking off, perhaps best illustrated by SolarCity's IPO this past month.

Heady times in downstream solar, to be sure, and that's probably not going away. 

That said, there are reasons to expect solar financing in particular will eventually be dominated by a few big players rather than the current somewhat fragmented group. Scale-driven efficiencies can be seen in branding, installer relationships, customer acquisition, and especially in cost of capital.

This latter area is where I'm already seeing a fair amount of separation starting to develop between "winners" and "losers". We've just been through a period where a small handful of investment banks (most prominently, perhaps, US Bancorp) spread around their commitments to rooftop solar financing across a number of solar financing players. But now I'm seeing indications that these banks are starting to gravitate toward a shorter list of rooftop solar financing players, even actively shifting away from others, because of factors like dealflow, quality of contracts, low cost of customer acquisition, etc. The rooftop solar financing players who can't obtain the lowest-cost capital from banks will be at a decided pricing disadvantage, and will be forced to join forces with other financing players, or to be acquired by upstream solar panel manufacturers looking for access to certain markets, or simply will go away. I think we'll start to see this happen in 2013. 

Just remember, when you see solar rooftop financing players start to fall out like this, it's not necessarily a sign of bad health for the entire sector. It's just a sorting out of winners and losers, and the winners will be likely doing quite nicely indeed.

4. Large corporates will continue to play a vital role in keeping cleantech entrepreneurship vibrant -- but there will be a shift from oil / chemicals to consumer products, IT and industrial equipment/controls strategics, in terms of level of activity.

Even as LPs and VCs have (temporarily) fallen out of love with cleantech, large corporates have continued to find these subsectors (again, under a variety of labels) strategically interesting. And over the past few years I feel like I've seen a significant upswing in the seriousness with which large corporates are looking to new energy and resource technologies for topline growth.

This seems poised to continue. Fortune 500ish companies have never been sitting on more cash, and the strategic interest in the cleantech sector broadly-defined hasn't waned much as far as I can tell. But with the emergence of low-cost natural gas in the US and the likelihood of low-cost gas (and to a lesser extent, oil) being readily available going forward, the major corporates that had been the strategic partners of choice seem to have less motivation to search for low-cost inputs. Namely, oil and gas giants, and large chemicals manufacturers. 

These are the large partners who had helped some of the capital-intensive plays in cleantech to address the first-project "valley of death" by doing things like JVs where they would provide the capital to put steel in the ground. And while this role likely won't be fully abandoned by them, a) many of them already have a pretty full dance card of startup partnerships by now; and b) low-cost traditional inputs reduces the need to find alternative inputs.

Meanwhile, the data side of cleantech has risen in prominence, and many customers still care about "green". This is attracting renewed interest amongst large players like Google and Facebook and IBM who view data as their bread and butter, and amongst consumer products companies eager to offer their customers green alternatives. In terms of focus and rhetoric it's almost a return to the days of emphasizing "sustainability" such as I used when working with such companies nearly two decades ago (and, btw, which will further drive interest in things like the Cleanweb and sustainable food/agriculture amongst investors), rather than just low-cost commodities production (such as dominated cleantech over the past decade).

Furthermore, while energy prices are currently low and on the decline, volatility of demand (especially in electricity) isn't going away. In my interactions with corporates in the industrial controls and equipment markets, there's a recognition that automation and optimization around energy will be a crucial complement to controls they already offer for production, quality, and so forth. So companies like Johnson Controls, Honeywell, Siemens are all poised to be important players in 2013, and I already see them getting serious about partnerships with smaller companies. Again, they may not consider it "cleantech" per se, but under whatever label you prefer they're getting serious about it.

5.  There will be no significant progress on US federal energy policy.

I plan to write up some observations soon from a couple of trips I made to DC in December to talk with policymakers, pundits, etc. about energy policy. But the short answer is that the White House and Capitol Hill don't have enough bandwidth to take on any major energy legislation effort this year -- pending some kind of unexpected disruptive disaster.

The Fiscal Cliff is taking all the air out of the room currently. And that won't be a quick resolution, even if there's some kind of 11th hour compromise that happens over the next couple of weeks -- there will be a lot of follow-on fights on the budget throughout this coming Congress. To the extent anything else can get done, the White House has already signaled that they care more about Immigration Reform and Gun Control as legislative priorities over Energy and Climate. It's not as if the White House doesn't care about energy policy. But they don't care about energy enough to elevate it over these topics and whatever other crisis-du-jour pops up along the way. Only if there is some kind of major unexpected disruption to energy supply, or some kind of horrific and obvious climate-driven disaster (because apparently even Sandy wasn't enough) will this topic pass the threshold from "yes, we should do something about it when we can" to the "we must do something immediately" category, at least in 2013. And clearly I'm not rooting for something like that to take place, so my hopes for any important happening legislatively are low. At least in terms of forward progress; there's always the chance of some rollback as the White House and Congress horse-trade in favor of higher priorities.

That said, there might be some small rationalization of energy policies that can be helpful on the margin. MLP treatment of renewables, for example, and more information-driven (as opposed to dollar-driven) efforts by the DOE to promote clean energy and energy efficiency. These would be good to see.

6. 2013 will be the year journalists (and thus everyone else) figures out that US cleantech entrepreneurship has become driven as much by family offices and other non-VCs as by VCs themselves.

Look, this is already the case. I came to the realization the other day that if I were to name the top 5 most active west coast investors I keep personally seeing engaged on potential cleantech venture deals I look at, at least two would be family offices. And on the east coast, our own group, a few angels, and quasi-governmental groups like the MassCEC and NYSERDA are as active as any remaining venture investors still investing in the sector. I don't mention this as a point of self-promotion, however, because I think it mostly points out just how far down the LP withdrawal from cleantech has taken institutional venture capital activity levels; it's not that suddenly Black Coral Capital and our breathren are taking on massively higher levels of deal activity. So it's more of a depressing thought than a point of pride, to have come to this realization. 

But while family offices and other non-VC offices are now, in my opinion, as important as VCs for funding cleantech entrepreneurship, you wouldn't be able to tell that from journalist coverage of the sector. And the simple reason is that VCs have the brand names and the PR efforts to get attention, and non-VC investors don't tend to report out their funding activities like VCs do (so a lot of their investments don't show up in the deal tallies, for example). That's all fine and good, that's the way most non-VC investors would like to keep things, they typically don't want attention. But sooner or later, we'll start to see journalists pick up on this shift and start to talk about it a lot more. If only because the VCs won't be feeding them enough cleantech-related stories to keep them busy...

7. Large-format (e.g., stationary) energy storage will be the next sector to see multiple high-profile flameouts.

I am personally a fan of grid-scale and distributed energy storage... over the long run. I see several promising technical efforts out there than might eventually result in very low-cost electricity storage suited for particular needs that would complement load control to help address variability for the electrical grid. 

But this is a sector that has seen a fair amount of venture dollars go into a number of capital-intensive startup efforts over the past few years, with very little revenue to show for it. In the current funding climate, that's not a recipe for raising follow-on financings. And indeed, in the third quarter PwC said that energy storage investments were down 99% year on year -- although that's probably an artifact of one particularly low quarter, it's indicative of a broader trend by investors away from long-development, capital-intensive plays like many grid-scale energy storage efforts. 

Thus, while some such startups will be able to carry on by combination of reduced cash burn, by reinventing their business models to accomodate existing storage/DG technology, and via the occasional follow-on financing, you have to guess that a number of them won't be able to carry forward and will be forced to shut down or sell for pennies on the investment dollar.

I'm loosely including SOFCs in this category, btw.

8. At least two well-known cleantech-focused venture capital firms will publicly shut their doors or at least acknowledge they won't be raising any future funds.

I've alluded to it several times above and written about it here, but the limited partner community has at this point really pulled back from the cleantech sector. And many of the cleantech specialist firms out there are at or nearing the end of their current fund cycles. I know several that delayed attempting their next funds in 2010, 2011, and now 2012 in hopes of finding a more receptive group of LPs later on. They limped through by supporting their existing portfolios, shedding some junior staff, and doing 1 or 2 new smallish deals a year to stay "in the game". But that game can only be drawn out so far. And several cleantech specialist VCs have some big smoking craters in their portfolios, which will make raising that next fund even harder. Believe me, I've been there.

So I certainly don't predict this with any happiness, but I do expect this will be the year when we see the cleantech venture capital shakeout extend from lesser-known firms and a pullback by the generalists, into the better-recognized cleantech specialist firms out there. 

Fortunately, there are others that still have dry powder, or that have been able to raise smaller new funds, and so while this is indeed an "extinction event" period right now for the sector, new and renewed champions will emerge.

This will eventually be looked back upon as a period of significant and healthy reinvention for the sector.

9. Natural gas prices in the US will spike at least 50% at some point during the year.

Most forecasts I've seen project only a slight rise in natgas prices going forward over the next few years, and I agree. Over the medium to long term we're clearly now in an era of cheap natural gas and it's having a major impact on the US energy market.

Henry Hub prices are currently around three and a half dollars per MMBtu, and consumers (especially power generators and chemicals manufacturers) are planning around that kind of price, perhaps drifting up to a bit over $4.00 per current 2013 forward contract prices.

But natural gas has a history of sudden price spikes. Why? Because of limited storage and a lagtime to increase production.

Gas drilling rig counts are well off of their 2011 highs. Horizontal drilling activity has stopped increasing and in fact has been flat or in decline throughout 2012. Therefore production was pretty flat throughout the year, and there's no sign of it increasing suddenly. Meanwhile, whereas throughout most of 2012 storage levels were significantly higher than during previous recent years, now they're back to more normal levels.

As powergen continues to shift from coal to gas and chemicals manufacturing recovers with the economy (and shifts to low-cost US gas supplies as well), short term natgas demand in the US feels once again pretty inelastic and primed for some kind of disruptive event (such as a major summer heat wave) that would rapidly deplete available storage and result in a price spike above $5 before drilling can kick back into gear. Potentially much higher than $5.

You don't have to disbelieve the fracking revolution to believe that a significant natgas price spike is inevitable. You just need to look back at historical price charts.

This is very important for the cleantech sector. Because while I don't myself believe low natgas prices are deadly to most clean technologies and applications, certainly I've heard sentiments to this effect amongst LPs and generalist VCs over the past few months. I definitely heard it from certain partisans in DC. There's currently this perception that low-cost natgas is here to stay and therefore that clean energy technologies are endangered and/or less important. That cleantech is "just a climate issue", no longer an economic issue. 

But it's not just the long-term price of energy that's economically important -- it's also the volatility. And natgas is historically one of the most volatile energy inputs. A big, disruptive price spike would serve to remind a lot of important constituencies that natgas should be an important part of the go-forward US energy mix... but that we can't let ourselves get so dependent upon it that a price spike hurts the economy as badly as an "oil shock" has done in the past. A price spike, when it happens, will hopefully remind everyone that we need an "all of the above" energy mix, and that emerging energy technologies -- and especially DG and load-control technologies -- are strategically crucial going forward.

10. The Redskins will make it at least to the NFC semifinals round of the 2013-2014 season.

Yep, I'm all in for RG3. He'll probably have some kind of a sophomore slump and/or get hurt again, but with one more draft to bolster the O-line and secondary, and hopefully a healthier receiver corps than this year's snake-bitten bunch, I think the Redskins will rejoin the NFC's elite teams.

I've even still got my fingers crossed for this year -- big game Sunday night.

So Hail! to a great 2013, everyone. Here's hoping I'm right about the positive predictions above, and wrong about the pessimistic ones. Have a terrific new year. 

It's been a crazy year in cleantech, and a lot of things didn't go as expected.

Especially by me, apparently.

Even if I'm not particularly good at it, I find the annual prediction exercise to be useful for developing a coherent picture of the coming year, as at least a starting point for planning. And it's also just a bit of fun to take some guesses and see how they turn out.

2012 flummoxed me because I was too optimistic this time last year. I thought we were about to turn the corner on cleantech venture firm fundraising, and thus that we would start to see a rebound in dealmaking. I failed to see just how toxic the politicization of cleantech would become. And I generally was too aggressive on trends that I do believe are underway, but that are moving a lot more slowly than I'd projected.

"1. Both dollar totals and deal totals for U.S. cleantech venture capital will be up more than 20% over 2011."

VERDICT: WRONG

We haven't gotten the 4th quarter tallies yet, but it would have to be a huge turnaround for the deal and dollar totals -- which have been declining throughout the first three quarters -- to end up even catching up to 2011 levels, much less expand upon them. I'd thought that economic stabilization was coming (somewhat true) and that therefore LPs would start making commitments to VCs this past year (not true at all).

2012 was clearly a down year for cleantech venture capital dealmaking. Will we see a rebound in 2013? 

"2. At least one 'brand-name IT entrepreneur' will launch or join a cleantech effort."

VERDICT: DIRECTIONALLY CORRECT, BUT WRONG ON SPECIFICS

The merger of cleantech markets and IT/web business models is actively underway now, and it's become a strong driver of the current activity in the cleantech venture market. And I've seen strong entrepreneurs with an IT background get into the market this past year. I wouldn't say we've seen a "brand-name IT entrepreneur" jump very visibly into the sector this year, however (not counting those who'd done it earlier, of course). No offense intended to any who jumped in and feel I should consider them a brand-name, of course! 

"3. There will be at least one additional major syndicate of family offices launched to target cleantech (or a synonymous label for the sector)"

VERDICT: DIRECTIONALLY CORRECT, BUT WRONG ON SPECIFICS

I've continued to see more and more family offices get into the sector and start to look to be active. But we just haven't seen any such additional syndicate officially launched. ...Yet.

"4. There will be no progress made on U.S. federal energy policy, and there will be a rollback of state-level policy."

VERDICT: HALF-RIGHT

Predicting very little progress on energy policy at the federal level seemed too obvious, so I just had to try to up the level of difficulty by projecting a rollback at the state level. D'oh. I still think attacking state-level policies is the next step for anti-cleantech forces out there in the political world, but really 2012 was more of a stalemate at that level than a rollback year.

"5. Significant and visible consolidation within the solar industry will occur."

VERDICT: CORRECT

And it will continue.

"6. 2012 will see the emergence of multiple 'roll-up' efforts."

VERDICT: ANECDOTALLY CORRECT

I've talked with a lot of entrepreneurs and investors who are starting to see the opportunity to take advantage of today's low valuations to roll up separate vendors into a fuller offering for customers. I've seen it happen a few times as well. But I wouldn't say it's been a very significant and meaningful trend yet. Stay tuned.

"7. New hybrid investment models will emerge."

VERDICT: STILL HASN'T HAPPENED

On the basis of talking with a lot of investors who are talking about and planning unique strategies (such as combined debt / equity offerings, venture capital + project finance, or investments into service models), I have now predicted the visible emergence of such hybrid approaches in 2010, 2011, and 2012. It's time to stop making this prediction. This appears to be one of those concepts that everyone agrees should happen, but for some structural reasons few investors have the flexibility to actually do it at scale.

"8. 2012 will see a big wave of corporate M&A in the cleantech sector."

VERDICT: WRONG

We still don't have the Q4 numbers on this, of course, but the Cleantech Group data for the first three quarters indicate that global cleantech M&A activity was actually down slightly. I end up talking with more and more corporate managers about cleantech, and I see a lot more anecdotal evidence that large corporates are getting serious about investing in and making acquisitions in the sector. But thus far that hasn't presented itself in the data of completed deals.

"9. A major geopolitical event will spike oil prices above $120/barrel."

VERDICT: WRONG

Here's what I wrote a year ago: "I predicted this last year as well, and sure enough, we had spikes because of geopolitical events, but in the end, the macroeconomic blues held down prices below $120/barrel for the entire year. As noted, I'm hopeful of at least some economic stabilization in 2012. On the basis of that hope, I'm willing to continue to bet on major price volatility for oil, one of the world's tightest and most easily manipulated markets. Until we finally figure out how damaging it is to our economy that we allow ourselves to be dependent upon such a headline-risk input, and start to wean ourselves off of Middle Eastern oil through smart policy and long-term capex decisions, markets will continue to be near-term price-inelastic and thus we will continue to see spikes whenever some crackpot somewhere around the world decides to make a stink.

"If China's economic expansion loses significant steam, or Europe fumbles and causes a global recession, this prediction will be wrong. But given even a halfway-decent economy in 2012, such volatility seems pretty inevitable. To borrow from Rick James, 'Oil is a hell of a drug.'"

Wrong two years in a row. And now there are more supply-driven downward pressures on oil than we've seen in several years.

"10. Several 'environmental markets' will collapse and shut down."

VERDICT: WRONG

In fact, the launch of the California carbon trading market was good to see. Carbon credits and other environmental markets continue to have their difficulties, but I was wrong to suggest they were going away in 2012.

"11. There will be an overall pullback in non-U.S. cleantech venture capital deal counts, but an increase in project finance."

VERDICT: TOO EARLY TO TELL, BUT SEEMINGLY CORRECT

We need to wait to see the Q4 numbers, but early indications are that this guess ended up being right.

"12. The Redskins will have a losing record next season."

VERDICT: DELIGHTFULLY INCORRECT

RG3 is even better than I'd hoped. 

So all in all, I was probably only around 25% right for 2012. Meh. In a few days I'll once again attempt to forecast the year ahead. Will I manage to do better for 2013? I hope that we all do, 2012 was a pretty lousy year for our sector.