The cleantech venture capital model isn't broken, but some investors sure are stretching it as hard as they can... In the three and a half years that I have been writing on this website, it's fascinating (at least to me) to go back and see how things have changed in the industry, and in the messages in my writings. At first, I started writing about a small niche in venture capital that no one else was even reporting on, so the purpose of the blog was to simply compile the news and some views in one place since that was lacking, and since friends and family had no idea what this "cleantech" thing was that I kept talking about. Then, as the sector started getting more and more interest, it was great to see all the influx of new investors (both generalist and specialist) in the sector, which brought along entrepreneur and innovator interest, LP interest, etc.  The writings on this site reflected a wave of excitement about the sector. The wave of new capital entry then naturally spawned journalists' questions about "bubbles" in the sector, and so the writings on this site started to explore more of the ins-and-outs of what is really going on behind the high profile deals and sectors, getting past the headlines to break down the numbers, etc. I still believe that there is not an overall bubble in cleantech venture capital, this investment sector has so much room to grow and the other market fundamentals are so healthy that cleantech/greentech will remain an attractive investment area for many years to come.  And I still believe that the entry of experienced investors into the sector is a very good thing.  Not only does it help build out the ecosystem in very healthy ways, it also means more smart minds and deep pockets and valuable networks around the boardroom table.  Having co-invested with specialists and generalists alike has only reinforced my conviction that cleantech investors should be welcoming new entrants with open arms and continuing to work together, because of the special conditions and specific factors at work in this sector. When I joined @Ventures two years ago, one of the major reasons I chose this firm was the senior investment team, who had not only been investing in cleantech as specialists since 2004, but also had a deep background in venture capital going back to 1995 (hence the "@" in the firm's name, a legacy feature).  And what they brought from that experience were some valuable (and at times, painfully learned) lessons about what venture capital needs to look like in order to produce the outsized returns limited partners expect to see when they put money into venture capital, given the high risk nature of the category. So there's a very deep set of experiences around the team in both cleantech and venture capital.  And what we at @Ventures have started to see in the cleantech venture capital sector are some unhealthy and likely unsustainable trends.  Not undermining the overall cleantech VC investment thesis, mind you, but some specific trends within that opportunity that bear watching closely:
  1. The shift to larger and larger funds.
  2. The related shift to later-stage investing.
  3. The related shift into capital-intensive subsectors and business models within cleantech.
  4. The mismatch of investment concentration with the geographic dispersion of cleantech innovations and innovators.
  5. The concentration of venture capital investments into just a few subsectors, while the lion's share of subsectors receive much less attention (much less dollars) from investors.
In preparing for an upcoming, small limited partner event I'm speaking at, and after several months of team discussions on what we're seeing in the industry, we pulled together a slide deck bringing this all together. The conclusions we draw aren't conventional wisdom right now, so this presentation may be a bit controversial.  And certainly not everyone will appreciate our thoughts, given how we're clearly not fans of the direction most of the industry is currently headed in. Frankly, there are some money-losing trends in the industry right now, and not everyone will enjoy having someone publicly say that.  But the data speaks for itself. So I thought readers might enjoy taking a look at the presentation and drawing their own conclusions. To be clear, as a former late-stage investor myself, it's not that I'm skeptical of the very concept of growth stage investing in cleantech, which plays an important role and will see some successes.  And believe me, I'd love to be able to drive to a board meeting here in the Boston area rather than take my monthly trips to board meetings in more out of the way places like I do.  But the magnitude of the shifts we're seeing aren't healthy in the aggregate. We've seen this movie before, and it doesn't end well. So I hope this starts a dialogue.  Comments, questions and flames are all welcomed. Leave comments below, or email me. . . . . .