Patience, Honesty, and The Strings of Free Money: Five Financing Themes from the Seventh Annual Conference on Clean Energy

Source: Erin Kutz, Xconomy, November 3, 2011.

The relationship between venture capitalists and cleantech startups sure seems pretty lukewarm these days, at least from what I saw yesterday at the seventh Conference on Clean Energy in Boston.

The lunchtime “VC” panel on cleantech funding 2.0 actually focused more on why venture capital isn’t necessarily the best move for financing transformative energy technologies, and was represented by the Department of Energy, strategic investors at major energy giants, and a cleantech investment banker. After that I checked out the session on seed funding, where panelists dished on how they identify cleantech startup opportunities. The day included a mix of themes like supplying the grid, energy innovations for developing countries, and waste-to-energy tech, but my five highlights came from a couple panels on investing trends.

So here are the key takeaways:

—Venture capital is a bit too impatient for cleantech. “You need someone who has a longer than two-year election cycle,” says Bic Stevens, founder of the cleantech focused investment banking services firm Stevens Capital Advisors. The nature of the VC fund lifecycle requires funds to post good returns in a short period of time, much shorter than the time needed for clean tech innovations to really develop and succeed, Stevens said.

Strategic investors in the energy space, meanwhile, are looking to bankroll and work with startups not just for financial return, but to improve their own technology and product portfolio. “Our goal is to treat that opportunity or company as either a platform for tremendous future growth or as a key enabler of our businesses that need an extra tool,” says Shaun Parvez, managing director and head of U.S. corporate development for Korean conglomerate SK Holdings. “It’s not about buying at 10 and selling at 20. It’s about buying at 10 and growing to a billion forever.”

—What is cleantech seed funding exactly? “The money that can go right after 3Fs go in (friends, family, and fools)—prior to Series A,” says Arif Padaria, the Massachusetts Clean Energy Center’s managing director of investments. But really it’s about “research and development, moving the needle, and making [the technology] more commercially viable. David Wells, greentech investment partner at the Palo Alto, CA, venture capital firm Kleiner Perkins Caufield and Byers, looks at seed as the “science stage” and Series A funding as “technology stage.” Even at the science stage level, a team has to show that

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