Gov’t Aid and Its Unintended Consequences

The federal stimulus package will help greentech companies weather the economic downturn, but it also could lead to some undesirable effects.

“It’s critical for the industry to view the stimulus package and all the helping hands as incredibly temporary,� said Michael L. Goguen, a general partner of Sequoia Capital. “We don’t want a company to depend on the government. It’s easy to be deluded into thinking that you are in a sustainable business because you’ve got all those money [from the stimulus package].�

Goguen’s comment, made at the Cleantech Forum in San Francisco, is a reminder that government aid comes with potential side effects. The federal and state government had played key roles in promoting the growth of solar and other greentech sectors even before the financial market crumbled. Now that they are making even more money available, will the tech industry become co-dependent?

For H. Jeffrey Leonard, CEO and co-founder of the Global Environment Fund, the need for government dollars also reflects the importance of financing, which dwarfs the importance of technology development during this tough economic climate.

“The structure of the cleantech market is changing dramatically. What really matters is project financing,� Leonard said at the forum.

Investors also can’t expect high return any time soon. Leonard said back in the mid 1990s, limited partners were making a 30 percent return in the stock market, so investing in startups wasn’t so lucrative. Now that the stock market is tanking, the LPs are looking for other opportunities and adjusting their expectations.

“It’s hard to make consistent double-digit returns in a subsidized industry,� Leonard said.