Why We Need to Bring Early-Stage Venture Investors Into NextWave Greentech
Why do we even need to talk about the next wave of greentech? And what is it, anyway?
When I started talking about an emerging next wave of greentech entrepreneurs and investors a couple of years ago, it was admittedly just described as "not what we did during the last decade." It was defined mostly by what it was not. And that was on purpose. In the spirit of figuring it out together, the idea was simply to learn the lessons of what had not worked, and to develop a variety of new strategies with more pragmatic approaches across the board. Hardware, software, internet, service-based models, all of them. A big tent.
Therefore, the term was somewhat vaguely defined.
As we're now exactly one month away from the NextWave Greentech conference, I've been reflecting a bit on some of the lessons learned over the past couple of years. And I think many of these efforts are now converging in a consistent new way of thinking, both for entrepreneurs and investors. It's still a big tent, but one with a consistent theme -- and one that increasingly matches where the overall venture capital community is headed as well.
If your goal is to see more greentech startups get funded and eventually succeed, this overlap with the evolution of the general venture model is crucial. It turns out, the overlap is around a pretty simple theme: capital required to get started, and time required to get revenue.
First, let's grossly over-generalize today's venture model into two broad buckets: early stage and growth stage. Early stage is the classic, romanticized image of venture capitalists who back startups during their initial creative stage. Growth stage is about putting big dollars behind established companies with significant momentum. Both models are alive and well, although in recent years there's clearly been a shift of emphasis and dollars into growth stage.
But growth stage is pretty mercenary, in that it's not very sector-specific. If a startup has an obvious growth and potential exit story, growth-stage investors will back it, almost regardless of business model, technology, etc. Which is all totally fine -- unless you want to see more greentech startups get funded, as growth-stage investors are totally neutral to that goal.
Growth stage is about investing in companies that are already on a clear path to success, but we need to see more startups helped onto that path in the first place. Because of the agnostic nature of growth stage, the funding patterns there are less of an endorsement of "next wave" pragmatism or any other theme, as it's just an aggregation of idiosyncratic stories that happened to finally arrive at an attractive stage for such funders. As such, there's no coherent, evident strategy to inform future entrepreneurs and set them on a pathway to success.
So therefore the more important constituency to engage consists of early-stage investors. And where are early-stage investors trending these days?
Mark Suster has pulled together a great presentation on this topic, "Why It's Morning in VC." It's a great overview of the industry in general, and he also includes a couple of key factors that early-stage investors are taking full advantage of right now that I want to specifically highlight. First, he points out that the cost of starting a company has dropped by 99 percent since 1995. And second (as also illustrated in this blog post), he notes that the "time to massive revenue is the most compressed in history due to scale and deflationary economics."
Put more simply, early-stage investors these days are focused on businesses that are cheap to get started and quick to get to revenue growth.
In light of that trend, is it any wonder that such investors have shied away from investments into sectors which, according to anecdote and reputation, require a lot of capital and a long gestation period?
So NextWave Greentech is all about showing entrepreneurs and investors that we can indeed tackle these massive market opportunities in ways that are relatively inexpensive and quick to get to revenue. This is possible not only for web- and software-based greentech startups, but also for hardware innovators as well.
Yes, this focus on making greentech startups inexpensive and fast to market leaves out some innovation areas that simply cannot fit that (nuclear fusion, for example). But across much of greentech, entrepreneurs are working on web, software, service and/or hardware models that strive for these ideals as much as possible. And that's really important, because once we can demonstrate how successful we can be at making greentech quick, nimble and cheap, the early-stage investors will find the overlap they've been needing to see.
So that's why we have the NextWave Greentech conference -- to highlight such efforts, and such success stories. To bring investor attention to the many entrepreneurs already tackling such an approach, to bring LP attention to the investors who are backing such entrepreneurs and to generally inspire more such entrepreneurs to jump in.
I hope to see you all there.
Photo Credit: Future Energy Investment/shutterstock
Rob Day is a Partner with Black Coral Capital, based in Boston. He has been a cleantech private equity investor since 2004, and acts or has served as a Director, Observer and advisory board member to multiple companies in the energy tech and related sectors. Rob was a co-founder of the Renewable Energy Business Network (www.rebn.org), a non-profit organization which was acquired in 2009 by ...
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