To yield better clean energy investments, let’s start asking the right questions
Venture capital investments in cleantech accounted for only 2% of total VC investments in the United States in 2015. That number is down from the cleantech and clean energy investment boom, and then bust, seen in the last decade. Is venture capital the wrong form of investment for clean energy, as some suggest? Or do we need to start asking the right questions?
In industrialized settings, the conventional electricity generation supply chain goes something like this: extract a natural resource (such as oil, gas, coal, uranium, biomass, wind, sun, water), manufacture a system that can use the calorific value of the natural resource to create energy (such as a steam turbine, nuclear reactor, solar panel, wind turbine, dam), transmit and distribute electricity over long distances with the help of a macro grid, plug in small and large appliances to make use of the electricity through a system of integrated wires in the built environment.
This traditional approach has gridlocked our society — our large and small private enterprises, investment firms, local, national, and international governments, and consumers. Some have asked why there is no clean energy equivalent of the well known, publically listed IT and Internet companies. Many have answered by pointing to the slow moving energy sector — highly regulated and resistant to change. While those may form part of the reason for stunted growth and lack of disruption in the clean energy space, the industry’s focus on the conventional supply chain also has a role to play.
What if we changed our paradigm for sustainable energy? What if we acknowledged that conventional energy companies are not the only companies addressing energy challenges? What if we asked: what are the solutions to ensure the ultimate function of energy?
Los Angeles is one hub where this shift is happening, especially in the transportation-energy nexus. Notoriously known for traffic congestion, Los Angeles has taken bold strides in sustainable transport and the green economy under Mayor Eric Garcetti’s leadership. LA now has multiple metro lines and counting, and has supported innovation in logistics by leveraging the largest port in the United States — the Port of LA — through incubating related startups at the Los Angeles Cleantech Incubator (LACI).
On October 7, Mayor Garcetti will help to inaugurate the La Kretz Innovation Campus at LACI. Village Capital will host its 2016 US Energy Stakeholder Forum at LACI also on October 7, featuring nine of the most innovative ventures across the country solving energy inefficiencies across our goods value chain, with a specific focus on the transportation of energy, water, food, and other goods. With the average long haul truck spending about $50,000 annually on fuel alone, and one-third of carbon emissions emanating from transportation, LA is a prime location to convene investors, startups, customers, and the wider entrepreneurship support ecosystem answering the question of how to reduce, and if possible eliminate, the energy intensity of transportation.
Entrepreneurship support organizations, venture capital firms, angel investors, and others have far too often focused on the electrons at the expense of the end use. We have been too busy asking questions about more efficient light bulbs, HVAC systems, and automobiles, instead of asking about how we can guarantee good sight, live and work at a comfortable temperature, and move from point a to point b. If we ask the latter types of end-use questions, the answers we receive from entrepreneurs may come in the least expected places. Instead of being confined and labeled as “energy companies,” these disruptors may introduce day lighting, new building materials, and hyperloops as solutions.
Scientific breakthroughs have been known to happen by accident. In 1945, Percy Spencer was experimenting with a new vacuum tube called a magnetron when a candy bar he had in his pocket began to melt, thus the concept of the microwave was born. Researcher Constantine Fahlberg discovered the artificial sweetener Saacharin (anhydroorthosulphamine benzoic acid) when he forgot to wash his hands before lunch and noticed a sweet taste to the chemical that he spilt on his hands.
Solutions to end-use challenges, such as cooking, goods movements, and access to electricity in rural areas, sometimes come from unexpected entrepreneurs in unexpected places. By reframing our clean energy investment challenges to be end-use focused instead of technology-focused, we open ourselves to potentially breakthrough startups. Some of the recent notable clean energy investment returns was Google’s $3.2 billion purchase of Nest, the thermostat and home energy management company, and Oracle’s acquisition of Opower, a provider of customer engagement and energy efficiency cloud services to utilities, for $532 million. These are examples of companies solving energy challenges — managing energy efficiency and associated costs in the home — as opposed to energy production companies.
Village Capital finds, trains, and invests in entrepreneurs solving real-world problems. We build communities around entrepreneurs and their ventures to improve opportunities for growth and success. Our peer-selection model delivers better results for entrepreneurs, investors, and our future world. The Village Capital US 2016 Energy cohort hosts a small group of startups innovating in energy consumption.
The Village Capital Energy Practice takes a unique approach to energy and cleantech startups. While less than 1% of venture capital in the United States is invested in sustainable energy, one-third of Village Capital’s portfolio is dedicated to clean energy ventures. We start with the premise that the purpose of entrepreneurship is to solve real world challenges, acknowledge that one such challenge is access to clean energy, and proceed with the thesis that companies solving energy challenges are excellent investments. Our Energy Practice encompasses “energy nexus” ventures: energy-water, energy-air, energy-transportation, energy-buildings, and energy-food. This way, we are enabling early-stage companies to build resilient cities, resilient rural areas, and ultimately a resilient economy.