Boston, Mass. -- Boston’s angels are increasingly interested in cleantech.  But to what end?

At the state of Massachusetts’ sixth annual Conference on Clean Energy, leading early-stage investors discussed the differences between venture firms and angel investors.  Whereas institutional funds focus on market-disrupting technological innovations, angels are more willing to consider smaller businesses, niche markets and service companies.

“It is very important to differentiate between what is a good business for you as the entrepreneur versus what is a good business for me as a VC investor,” said David Wells of Kleiner Perkins Caufield & Byers. “I am trying to move the needle on a billion-dollar fund and create a durable enterprise that will still be standing 10 or 20 years from now.  That is very different from you achieving success with your venture.  Just because I declined to invest does not mean it is not good for you. It means that I cannot achieve my objectives with my fund. Angel investors and high-net-worth individuals have their bar set in a different place.”

David Miller is among those with a different set of constraints. In 2004, Miller founded the Boston-area Clean Energy Venture Group as a collection of four angels who share diligence and together invest in early-stage companies. The group has since grown to 10 members and has made eight investments as a unit.

“We don’t have a billion-dollar fund. We don’t have that requirement that a company has to be[come] a multibillion-dollar company for us to have made a successful investment,” said Miller. “But it [still] has to move the needle. We are still financial investors. [...] If the company ends up selling for $50 million and we have made a $500,000 investment, that might work out. That company may be more disruptive in a niche than economy-wide.”

But do such companies really exist in the notoriously capital-intensive cleantech sector? A number of the companies out of the state -- A123 Systems, E-Ink, Konarka, Luminus Devices and the bomb that was Greenfuel Technologies -- have been held up as examples of how not to spend $70 million.

Six months ago, Bic Stevens organized Boston Cleantech Angels, a group that has quickly grown to include more than 20 Boston-area investors.  He and his colleagues believe there are significant opportunities for angels in cleantech.

“There are different markets. Five years ago, I was raising money for a little company called Sterling Planet,” said Stevens.  “I tried to raise $2 million.  Not one VC would touch it.  They are [now] the leading supplier and buyer of renewable energy certificates in the country.  This year, they will make $11 million in profit.  There are opportunities like this, but they are all different. There are places for the angel community where a $50 million exit is fabulous.”

What metrics do angels evaluate when trying to identify the next Sterling Planet?

“We are looking for sustainable competitive advantage, a company that is going to be able to differentiate itself within a market niche, address that market well, has a team that can execute and is reasonably capital-efficient so that either our funds can carry the company or there is a very well-defined path for the company to reach a Series A,” said Miller.

Angel investors may also be more willing than venture capitalists to invest in service companies.

“The advantage of going after service companies is that VCs don’t like them,” said Stevens.

“Two or three years ago, we said we looked at technology, not service companies.  But one of the best investments we have made is a service company called Next Step Living. We very rarely rule anything out. We met the team and were extremely impressed,” said Miller.

“This company does residential energy audits.  They had a very strong focus on customer service and making their customers happy. They knew how to market and execute their service well. I saw it as the McDonald’s of energy efficiency.  They didn’t have great IP, but they were executing.”

Of course, angels and venture capitalists are similar in at least one respect: both look for exits.

“We want to see potential for an acquisition, merger, [or] IPO, the traditional type of exits,” said Miller. 

“The problem, as we all know, is that there are few public exits to speak of,” said Stevens. “Right now, a lot of angels in Boston are licking their wounds, having been fodder to the VCs, who in turn got crushed by the fact that there are no markets.”

But even in a tough environment, Boston-area angels are increasingly interested in cleantech. Stevens’ group, Boston Cleantech Angels, has been adding two or three members a month and plans to grow to 50-60 investors.

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Yoni Cohen is a JD-MBA student at the Yale Law School and the Wharton School at the University of Pennsylvania.  A former college basketball writer for

Fox Sports, he tweets about cleantech @cohen_yoni.