Onward! Sustainable Energy: Part I
Reports of My Death Have Been Greatly Exaggerated
Within a span of just a few years in the mid to late 2000s, cleantech startups saw an astronomical rise in venture funding and an equally rapid collapse of investments. The word “cleantech” itself became dirty around some investor circles.
Where is the cleantech and sustainability industry today and why am I personally as excited as ever about the industry’s potential to transform the future of humanity?
In the first cleantech boom, private investors poured capital into companies with enthusiasm and public financing was readily available in the millions per company. Investors, with their “fear of missing out” hat on, jumped on every company with a promising pitch.
Fundamentally, many companies lost touch with the tried and true methods of raising a series of smaller rounds, demonstrating achievement of technical and commercial milestones, and using capital prudently — as an example, startups wanted to develop production tools from scratch rather than use tools that were tested and known to work.
Cleantech Venture Capital
Investors learned the hard way that many of these technologies took much longer to commercialize at scale and companies often needed to reach the 2nd or 3rd generation of their products to produce a positive gross margin. Essentially, startups ran out of capital before they could gain the scale and technology advances needed to compete with conventional energy. Throw in the natural gas boom in the United States and many companies got whacked by a confluence of challenging market forces.
One framework to look at this roller coaster ride is the view presented in the book Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages.
The author, Carlota Perez, shows that with many new technologies, there are two main phases. The first is the invention phase and the second is deployment phase. While technology is in its invention phase, there is risk of financial overreach (aka bubble).
The pattern happened with the Internet as the first few years of Internet adoption generated great hope and promise but resulted in the Dotcom crash. In the second phase or the deployment phase, starting with companies such as Youtube, Facebook, and LinkedIn, the infrastructure was more mature, costs were lower, and adoption and reach were faster. The second phase of the Internet generated tremendous value for entrepreneurs and investors alike. (Disclosure: GSV owns shares of Facebook)
We see a similar pattern in clean technology. During the first invention phase in the mid to late 2000s, most of the innovative technologies were being developed and an extraordinary amount of capital went into technologies before they were ready for the deployment phase.
Now, in mid 2010s, we are beginning to see clean energy turn from invention to deployment phase in dramatic fashion. Some investors have fled permanently from the space, leaving valuations for some high caliber companies low. Investors today can get into companies that have spent nearly a decade (and other people’s capital) in developing an amazing technology at reasonable prices.
There’s been more solar deployment in the last 18 months in the U.S. than in all the time period before that. In fact, that is exactly the speed of Moore’s Law — a doubling in 18 months. Specifically, Q1 PV (photovoltaic) installations have grown nearly tenfold since 2010.
Solar Installation in the U.S.
Large-format energy storage is expected to grow sevenfold in capacity in the U.S. by 2020, electric vehicles sales keep hitting new highs and are ten times higher in May 2014 than just three years ago, and LED lighting installations are growing at a 435% CAGR.
Now in 2014, many investors have retreated, but scientists (and continued technological innovation) don’t go into hibernation just because there is an economic recession. Looking to the future, I think we can be optimistic about clean energy based on technology breakthroughs and business model innovations.
Read Part 2: Our Pale Blue Dot
Want to chat more about building a 100% sustainable world? Find me on Twitter @li_x_jiang.
