Cleantech VCs: What wave are we going to ride?

This morning's keynote panel on cleantech VC investing was a remarkable discussion between 5 well-informed, experienced practitioners. The consensus view was that VC plays a key role in helping companies "bet the farm" on new technologies, but that the VC model may not meet the capital needs of many cleantech businesses in reaching commercial scale.

The panelists made a number of excellent and provocative points in support of this argument, which we'll summarize in a separate post. But I wanted to draw particular attention to something Jon Karlen of Flybridge Partners said. VC investors earn their returns from the "homeruns" in their portfolio, which, by definition, will comprise only a handful of their investments. A key success factor in these homeruns is the timing of the investments; that is to say, a great many investments fail because their products are simply too far ahead of where the market is.

As Jon put it: early-stage companies cannot create the demand for their products, so the question for those companies (and their backers) becomes "what wave are we going to ride?" What demand-side trends are large enough to fuel the growth of these companies? How good are investors at detecting those trends? What external forces (e.g. social changes, behavior shifts) are poweful enough to support those demand trends? And how do we better understand those forces?

These questions were a terrific reminder (I thought) of some of the natural constraints of investors and companies in this space, and evidence of our continued relevance as the Business and Society Conference here at Tuck.