A recent post by Battery Ventures VP Mike Dauber on the Obama administration’s challenge to cleantech entrepreneurs generated some discussion among my friends and colleagues. One point of focus was whether or not this really is our “Sputnik moment” and, if so, whether the race to the Moon was really worthwhile anyway.
Responding to this point first, any reader of my blog will know how strongly I feel about our successful efforts to put a man on the moon. Aside from all of the economic benefits the follow-up to this program yielded, the greatest benefits were less tangible. JFK’s challenge inspired a nation (the world?), galvanizing us to achieve a nearly impossible goal in a nearly impossible time frame. And the nation responded with the very best of its capabilities. Nearly 50 years later, the race to the Moon still inspires at least this engineer / entrepreneur / leader and, I suspect, many more.
That said, saying that cleantech is our new Moon race doesn’t make it so. I look around me and it definitely doesn’t feel like a Moon race. Some of the nation is divided about whether cleantech efforts are valuable but most of the nation is blissfully ignorant about what cleantech even means. I wasn’t alive during the Moon race, but I believe that it captivated the nation almost entirely. Those who were alive, feel free to contradict me. So my first response to the administration’s attempt to paint cleantech innovation as “the new Sputnik moment” is: #fail. It will take real leadership to inspire that kind of moment, not a few soundbites in a few speeches.
Now, when it comes to evaluating this post and the White House policy that it references, I can’t claim to be objective because I am professionally right in the thick of it. Objective or not, though, I’ll tell you exactly what I think.
The stated policy to use government funds to incent cleantech innovation is, at best, ineffective and, at worst, intentional BS that just pays lip service to a current “buzz” topic. As Dauber pointed out in his blog, almost all government funding goes to university / research labs where they work on multi-year / multi-decade cycles and are completely insulated from commercial outcomes. The result: technologies that may pay off in 20+ years and may or may not ever be economically viable.
There is also a great deal of stimulus money going to large, established companies to deploy existing (and often outdated) technologies in the name of cleantech. This includes smart meter deployments and solar installations. While this is a little bit more helpful because it produces results in the here and now (and helps some companies move a little further along the scale curve), it does nothing to foster innovation, it lets large companies live temporarily in a capitalist fantasy world (in which their products / services are paid for by an irrational consumer) – which doesn’t actually help them in the long run – and, most importantly to me, it does absolutely nothing to incent / motivate/ support small business entrepreneurs. Of course, fostering small business entrepreneurship is another alleged goal of the administration since these organizations are the source of so much job growth but, if that really is the goal, put your money where your mouth is.
So where does that leave the cleantech entrepreneur? Looking for capital from traditional private sources: VCs, etc. That sounds well and good except that the VCs aren’t investing much in early stage cleantech deals. There is lots of great PR about the $4B invested last year in cleantech – that sounds great! When you dig deeper, though, the vast majority of this is mezzanine (late-stage) investment in companies that are already quite mature (relative to new startups) and project finance (e.g. financing the construction of a wind farm).
So you have cleantech entrepreneurs like me, with a market-validated concept that is so much more than just green for green’s sake. Smart Office Energy Solutions reduces office and office-like building energy consumption by 25% with payback periods of less than two years for our clients! You don’t have to be a green zealot, you don’t have to care about our nation’s energy security, you don’t have to care about dwindling energy supply for this to make sense – you just have to care about saving money, which we do so much better than the traditional, capital-intensive retrofit solutions that are already out there. And yet we’re spending months out there trying to raise capital from professional and private sources that are still pretty risk averse / gun shy from the beating everyone took in the recent downturn. Oh and by the way, the government just passed regulations to make it harder for us to legally take investment from private sources! We are the exact poster child of what the administration claims to want to support and yet we are killing ourselves just trying to move along.
Maybe I’m wrong about this. Maybe our idea sucks. Maybe I’m just very bad at raising funds – it is my first time, after all. I readily admit that this is quite possible. But I see many other great ideas / entrepreneurs out there in the same situation while, at the same time, the capital markets are throwing ridiculous bubble-style money on social media companies that have yet to show any true value creation.
I was in Washington DC the week that Obama was elected and I was electrified / excited. In front of the Lincoln Memorial I signed a huge card to him. Above my signature I wrote, “Lead us to a better energy future!” Instead I’ve seen him spend a lot of political capital getting more people insured by a healthcare system that is totally broken (Stay tuned for a subsequent blog post on this.) and take very few, ineffective steps on energy.
A better energy future will not be attained by doling out government funds for slow, academic research and deployment of existing technologies. In fact, it isn’t the government’s position to dole out funds for these purposes at all. The government has no competence in taking risks and it is actually built from the ground up to avoid such risks. Doling out funds should be left to private industry so that efficient capital markets can determine what gets funded. If the government wants to help – and I believe it should want to help – it should set a better economic context to motivate cleantech endeavors. This means eliminating massive tax breaks for dirty energy production and ceasing to subsidize energy as heavily as we do throughout the value chain. This means more money for the government to reduce its insane deficit and more motivation for investment in newer / riskier startups.
Finally, the government should step up and show some true leadership. Create a sputnik moment by inspiring people. Obama has many more eyes on him than I do but, as long as he continues to fail in this regard, I’ll keep trying to inspire people from the ground up. Day by day I get a little bit further and I have little bit more effect. If Obama lets me beat him to inspiring a generation to focus on cleantech, then shame on him.