Full Title: The Promise and Pitfalls of Venture Capital as an Asset Class for Clean Energy
Author(s): Alfred Marcus, Joel Malen and Shmuel Ellis
Publisher(s): Harvard University Initiative for Responsible Investment Conference
Publication Date: 8/2012
Full Text: ->DOWNLOAD DOCUMENT<-
Clean tech investment differs from traditional venture capital (VC) sectors by virtue of need to lengthen the time horizon of involvement in investments–in both directions, that is, more investment and involvement in firms at an earlier stage of technology development and with firms in a later stage of technology commercialization. Consequently, clean tech VC investing requires changes to the traditional VC approach. In this paper, we provide some evidence that suggests that these changes are occurring, that VCs indeed may be in the process of adapting to the requirements of clean tech investing. This paper reviews both the potential and limitations of venture capital as a source of funding for clean energy. It tries to paint an accurate picture of the realities of VC funding of clean energy as it has evolved during the last decade. In this paper, we provide preliminary evidence that suggests that the more clean energy becomes a part of the VC world the more venture capitalists are adjusting their operating procedures to accommodate this category of investment. The evidence suggests that a number of adjustments are taking place. First, because of a fixed pool of resources, VCs are investing larger amounts of their money for longer periods of time. Second, they increasingly have been avoiding high risk clean energy production, distribution, and installation manufacturing and production companies and funding the back and front ends of the solar energy supply chain and startups that focus on the intersection between energy and information technologies areas. Third, besides making bigger bets, stretching out their timetables, and avoiding high risk and capital intensive companies, they have been experimenting more by investing in a greater number of firms in risky technologies whose commercialization is less imminent. If the VC role in clean energy is to be more transformative we believe it is because that these trends will gain momentum, but how deep these adjustments are and whether they will grow in the future is not certain.