We had the opportunity to speak with venture investor Matthew Nordan of Venrock about new ideas in greentech investing while we were reporting from Senate Majority Leader Harry Reid’s (D-NV) National Clean Energy Summit.
First off, if you haven't registered yet to attend NextWave Greentech Investing, now would be a great time. As Rob Day mentions, the agenda's really coming together; Schneider's head of smart grid strategy will be there to tell everyone why they keep acquiring cleantech companies, and what that means for the next wave of exits. The venue is starting to fill up with investors and entrepreneurs. Nordan is one of the many VC folks with new ideas on the agenda.
There are two reasons why VC investment in greentech is changing, according to Nordan.
First, there was an “unnatural bubble” of investment from about 2004 to about 2010. “It was bound to produce many more failures than successes,” he said. And it did, creating part of the current reluctance to invest.
Second, the cost of launching an internet startup is a couple of orders of magnitude lower than it was in 2003, Nordan said. “Ten years ago, a startup would buy servers and negotiate co-location space. Now all it takes is typing in a credit card number. That makes the potential return orders of magnitude larger.”
The result is “lots of new ideas,” he said. An example is the Broadscale Group, he said, which is organizing strategic investors in a different way.
“It is a member network of investor corporations that have a deal-by-deal right to invest in particular startups, but not an obligation to commit their capital,” he explained. “It is not a fund. Investors pay for the opportunity to participate on an investment-by-investment basis.”
Another idea that excites Nordan might be called "energy philanthropy."
“It took fifteen years to get First Solar (FSLR) to its great outcome,” Nordan said. “More patient money that does not have to compete for return, like foundation money, trusts, and high-net-worth individuals, may be better suited for the early stages of those types of companies.”
The leading effort, Nordan said, is called PRIME: Program-Related Investment Makers for Energy. The model comes out of health care’s disease philanthropy model, he explained. “Philanthropists jumped in where for-profit capital would not go.”
A well-known example is the Gates Foundation’s funding of vaccine-development and rare disease treatment companies. “It is not that there isn’t money to make in that field, but that it is such a long timeframe and there is so much uncertainty that it is not suited for money competing for returns.”
For the breakthroughs necessary to power a world of 10 billion people like nuclear fusion and electrofuels and solar antennae, he said, “It is unlikely that for-profit money will go first -- but philanthropic money might.”