The Rules in Cleantech
Posted July 11, 2009
Neal Dikeman at Cleantech Blog has a post on some basic rules for investing in clean energy technology - The Rules in Cleantech.
I've now been asked enough times, that at the risk of destroying what little edge Jane Capital may have in cleantech, I finally got around to blogging our "Rules" in cleantech investing and business in general. Hopefully it will stimulate some good debate.
One of the things that makes cleantech different from other investing areas, is the best practice rules are the opposite of what the best investors have grown up with. Maybe that's because cleantech IS energy and energy IS different.
Here is our version of the Rules:
1. Energy is slow and big - Energy technology R&D and commercialization time frames are longer and costs higher
2. Technology is “cheap”, the scale up is where all the risk is
3. There is no disruptive technology in energy, only disruptive policies and resource shocks that make certain technologies look disruptive after the fact - aka, "it's the policies (and subsidies), stupid"
4. At scale, there is no capital efficient investing in energy
5. Commodity prices and policy tend to be more important variables than technology and management
6. Energy is at heart a resource play, the price you pay matters more than what you do with the resource
As a result we've worked out a strategic playbook:
1. Look for mature technologies - if it's not 10 year old technology, don't touch it.
Limit scale up risk and look for technology with few dependencies for scale
2. Embrace policy - solid policy frameworks are much better bets than great technologies. In fact, most of the serious money in cleantech has been made by being in the right place when the policies or subsidies hit critical mass, not by developing technologies after the fact.
3. Expect lower exit multiples, and target lower burn rates over a longer commercialization time as a result
4. Discipline wins. Think Stage Gate and SPC instead of venture style “massively parallel” R&D commercialization strategies
5. Don’t be afraid to play a diversified investment strategy
6. Don’t ignore Acquisition & Development as a viable growth strategy
7. Don’t be afraid of good low tech deals, that's where many the cleantech hits have been (if we haven't heard "that's not a venture bet" 3 times, we tend to stay away.)
8. “Powder dry approach” - deploy limited capital early on for larger stakes and focus on returning capital quickly, not rapidly deploying capital
9. Secure vastly superior market intelligence before moving - stealth is pretty much a worthless strategy, you're too likely to miss key things that way.
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