Is green red or black?
Few startups ever dream of having their name called out during a presidential debate, yet this political season there were a few that wish they hadn’t been. Regardless of which side of the aisle you sit, it is becoming more and more apparent that a green tech bubble has burst. So what does this mean for all the entrepreneurs out there that are sitting on the next big green breakthrough? Is green just a gimmick of the past that investors will no longer fall for? What are the lessons for tech innovation that the recent years of green turmoil have taught us?
by Tim Jackson graduated from West Virginia University in 2010 and is currently a graduate student in the Mechanical Engineering department at Carnegie Mellon University
By far the most publicized and criticized domain of green innovation has been green energy technology. Whether you’re Solyndra going down in a very public ball of flames or the less well-known MiaSolé, from an investor’s standpoint the green energy market has taken a significant hit. In fact, venture capital investment data from the Cleantech Group indicate that third quarter investments in green technology are down 30% from the previous year. While much of the investment woes have been due to a significant, and in some people’s minds well overdue, collapse of the solar energy market (down 15% this year), the somber investing mood has most definitely spread throughout the clean technology market [Statistics Source]. Diverse venture capital has appeared to lose interest in the green market altogether while recent bankruptcies and cutbacks at companies like A123, SunPower, and Abound Solar have even made some specialist investors nervous.
There are many opinions on what has caused the recent green tech decline, but perhaps the most insightful comes from Dow Chemical’s chief technology officer William Banholzer. As described in Todd Woody’s Forbes article, at a recent tech conference held at MIT the Dow head offered some frank words to green tech companies, “We need to stop thinking about what’s possible and we need to talk about what’s practical. When you ignore the laws of thermodynamics, you’re dead.” Furthermore, Banholzer points to a lack of economic viability in creating products that are not price competitive as exacerbating the problem. However, quick-turnaround venture capital has played its part as well. Instead of further venture capital investment Banholzer suggests more patient partnerships with larger companies that have experience in the market and are capable of utilizing the incremental technology improvements many startups are banking on as a solution to eco-friendly technology investment.
A differing opinion comes from a top green technology venture capitalist Vinod Khosla, outlined in Martin LaMonica’s Forbes contribution. While many VC firms are running from clean technologies, Khosla believes that it’s all a matter of risk versus reward and that there is still value in green technologies, if they are the truly disruptive kind. One point both Banholzer and Khosla agree on, though, is that companies can’t keep making products that are not economically viable just because they are eco-friendly. As Khosla puts it, “When we make investments they have to make economic sense. 95% of our portfolio, with one or two exceptions, doesn’t depend on subsidies.Subsidies in the US or Europe might help you get started, help you get down the cost curve but if the technology is not competitive unsubsidized in the marketplace within five years of it launching, we won’t invest in it.”
Despite the downturn in the energy market, green technologies built around economic viability continue to gain ground in the marketplace and venture capital funding. Smart add-on green technologies like Nest, the intelligent thermostat company founded by former Apple designer Tony Fadell, and energy-saving green phone app developer PlotWatt have managed to sustain funding, at least for the moment. These products that help us with our general greenliness have managed to move into niche markets by providing consumer-centric products for eco-conscious patrons.
The general interest in green technologies remains high due to the marketability of green products and consumer interest remaining focused on these issues. More established companies such as Patagonia have managed to build a reputation around being green, so the model is viable. In the end, it seems that the recent green tech hangover may be just what entrepreneurs and investors needed to sober them up to the reality that simply because a company is green doesn’t mean it doesn’t have to follow the same rules.Looking back, much of the green tech anguish can be attributed to the fact that many companies valued being green over designing usable, purchasable products based on their new technology. Still, the question remains will future investors see green tech as worthwhile risks capable of putting them in the black, or whimsical ideas with little sustainability destined to land them in the red?