Tag: Cleantech

Climate Tech, AI, ChatGPT, and Venture Capital

Like many of you, I’ve been having a lot of fun playing around with ChatGPT over the past few months and started wondering about how tools like this would change the world of startup creation and investing in the future.

ChatGPT – What is it?

Late last year, OpenAI released ChatGPT — sort of an advanced AI chat-bot — an improved version of its earlier GPT models. The basics way these systems work is that they’re trained on a huge corpus of text (hundreds of billions of words from the web, books, wikipedia, etc.) and designed to predict the next word given a certain prompt and the words that came before. The results are uncanny in how natural and real they (usually) sound. 

You know what, let’s have ChatGPT tell us in its own words:

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Probing those limitations of the system — seeing where it doesn’t work — has been just as fascinating as seeing where it will work. Examples abound of funny mistakes the system makes, like insisting that the “fastest marine mammal” is the peregrine falcon. In strange ways the system reveals that it doesn’t /quite/ understand what it’s talking about. 

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Does ChatGPT understand science?

At this point, I was wondering what effects a tool like this would have on our world. Some fear the end of the education system as we know it — sharing examples of how the tool could be used to both create test questions, write essays, and grade them! (https://twitter.com/emollick/status/1598745129837281280)

The scariest example for me, was the following thread:

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Follow the full thread here: https://mobile.twitter.com/paniterka_ch/status/1599893718214901760

Dr. Kubacka wrote her dissertation on multiferroics, a special class of materials with interesting electromagnetic properties. (https://en.wikipedia.org/wiki/Multiferroics). First she started probing on whether GPT could describe the technology. Then she began asking about specific papers relevant in the field.

If you read through the thread, GPT first provided fake, but totally convincing, citations for the key papers in the field. Then she started asking about a made-up extension of the field that was equally convincing. The way she describes the tool as “hallucinating” details about the technology puts me deeply in some uncanny valley!

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As someone who evaluates thousands of new research ideas within the field of climate tech, all of this inspired me to ask a few questions about how this tool could be used to generate new research ideas, describe existing ideas, and, perhaps more darkly, how it could be used to dupe grant review committees. 

Question 1: Can AI create new Climate Tech Startups?

Coming up with a wholly new research idea is no easy feat. Often new ideas come from years and years of experience in a field or from combining unrelated ideas.

I probed ChatGPT on whether it could combine disparate ideas to form new concepts:

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All of these sound reasonably plausible, but none sound particularly novel. A quick Google scholar search comes up with some 500,000 articles about graphene-based solar cells, and about the same for carbon nanotube hydrogen storage. The possible exception might be microfluidics for algae production — there are plenty of uses for microfluidics in algae research — for things like rapid prototyping and characterization, but it’s not clear that it would be a scalable solution for production.

If we ask GPT, it gets into what I see as its defining (and maybe most frustrating) characteristic, the sort of wishy-washy, noncommittal answer. 

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In any case, it’s a fascinating proof of concept! In short order, I expect that a version of GPT that is connected to updated internet results will be able to plug ideas into a search engine until it finds one that doesn’t have many prior examples.

The idea of combining known fields to create a new invention may or may not be a good way to generate research ideas, but what about a more targeted approach?

Targeted idea generation

I asked ChatGPT to help come up with new ideas for hydrogen generation. 

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By and large, these are good, standard appraoches, even if some of these answers are not really on target (The suggestions for nuclear, geothermal, hydro, and power to gas are sensical but are really just specific cases of #1.)

So far we’re doing OK as far as a set of answers to a test in an introductory course. But quickly we get into territory where GPT is out of its depth.

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This explanation sounds so reasonable, so specific, so detailed — it’s hard to believe it’s nonsense.

What ChatGPT is claiming is that you just need some heat and a catalyst (basically some material that speeds up a reaction but otherwise nominally doesn’t react) and you can turn CO2 and water into just hydrogen and oxygen. 

As our introductory chemistry reminds us, matter and energy can’t be destroyed — the carbon atom in the CO2 has to go somewhere! 

Let’s push ChatGPT a bit:

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Notably, this is not the reverse water-gas shift reaction, and furthermore it’s not balanced. Let’s see if ChatGPT can uncover its mistake…

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ChatGPT did figure out that there was a missing carbon on the product side, but still wasn’t able to create a balanced reaction (3 oxygens are missing from the right hand side). The second attempt just doubled both sides, which is sort of an irrelevant change. 

Back to our original question, can ChatGPT come up with something totally novel?

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Well, this is certainly out of the box thinking! 

In the next segment, I’ll be going into more detail about whether ChatGPT can (or thinks it can) come up with new research ideas.

The a16z for Climate Tech

Jason Jacobs, host of the excellent new podcast My Climate Journey, wondered aloud on Twitter this weekend what the Climate Tech version of an a16z or First Round would look like. Two caveats before I give my answer

  • Existing climate investors are playing this role today because they have no other choice.
  • There is certainly room for a $10B firm to put even more resources behind this.

What’s so special about a16z?

Startup investing today is so much more than just writing a check. Every firm pitches founders on the value they’ll add. (There are even twitter parodies calling into question how serious those offers to help are.) There’s a reason for this focus on value-add. There are three ways a VC can be successful (let’s ignore luck for a second):

  • See more good companies (deal flow)
  • Pick more good companies (selection)
  • Help companies succeed (value-add)

** for more on this see the academic research like “How Do Venture Capitalists Make Decisions” by Gompers and others.

But Andreessen Horowitz made its mark by defining what a “value-add” investor is. The firm’s founders understood that many of the next greatest tech companies were going to be built by product and technology people - founders who understood technology and markets, but maybe weren’t expert storytellers, didn’t yet have media and PR experience, and didn’t have the network that Marc and Ben had. They understood that they could accelerate those new companies by providing bench strength - partners at a16z that could be called on to help recruit a great head of sales, or someone who could get the company featured on the front page of the New York Times. In short, in addition to providing sound advice from their board seat, a16z would put people to work every day solving their portfolio companies’ problems. Today, all firms understand that the bar has moved and they can’t just provide a check and some occasional advice.

What are the current Climate Tech funders doing?

Jason’s question wasn’t really “why isn’t there an a16z today” but rather, if what software companies need is better PR or better access to recruiting than they could get on their own, what could an analog in climate tech provide?

One answer is that each and every of the active climate funders are doing this every day. [The following list will not be comprehensive, so please let me know what I’ve missed!]

At Clean Energy Trust, we take an active role with the 31 companies we’ve invested in. We work with our companies to hire their next set of leaders, we work with them to find their next early market, we connect them to grant and funding programs, we spend tons of time helping them craft their pitches for the next funding round, connecting them with other investors, and finding pilot opportunities for them. Activate/Cyclotron Road has built excellent free content libraries (http://playbooks.cyclotronroad.org). Greentown Labs and the Los Angeles Cleantech Incubator regularly bring in experts to mentor their companies and connect them with early customers. Elemental Excelerator pairs great companies with test and demonstration opportunities. On the fund side, just to name a few, Breakthrough Energy Ventures, Energy Impact Partners, and Energize Ventures have dedicated staff to match portfolio companies with relevant customers.

Photo by Sebastian Unrau on Unsplash

So, what could we do with $10B?

Today a16z manages around $10B. If you assumed a standard 2% management fee, that would mean the firm has $200m per year to spend on people to support portfolio companies. If we had those resources (or even a fraction) applied to climate tech, here’s what my wishlist would be:

  1. Turbocharged industrial marketing support. So many companies in the space have a great technology that could be used in hundreds of different applications, but haven’t found the perfect fit. Unfortunately, this process takes a combination of experience and luck. By pairing companies with experienced industry experts, we could accelerate their time to first revenue and prove that the company is an attractive follow-on investment. To cover the broad range of industries within Climate Tech, you’d need to have a relatively deep bench.
  2. Top recruiting. Finding the next perfect team member to add sales, marketing, or manufacturing experience to the founding team is expensive. Unlike the market for experienced software talent in Silicon Valley, there isn’t a deep pool of these people and they’re spread all around the country. For the kinds of companies we’re talking about, hiring a recruiter could cost several months of runway. A fund that could bring this in house would put companies on the fast track.
  3. Policy, regulatory, and lobbying help. All startups need to “eat their policy vegetables” and this is especially true in climate tech. Imagine offering what Tusk Ventures does for its highly regulated startups like Uber. And while many entrepreneurs might feel uncomfortable with lobbying, the reality is your competitors (incumbents and other startups) are doing it. (As my colleague Paul says “If you’re not at the table, you’re on the menu.”) One example - a solar company discovered that one of their competitors was on the verge of changing state building codes to require all panels to be a certain size, a move that would have completely blocked the company from any new sales.
  4. Grant writers. Jason’s suggestion of a grant writer or two would be hugely helpful. Like with the industrial marketing experts, you need a broad pool of talent here. Instead of having these writers on staff, the fund could provide access to a network of expert grant writers with expertise across energy, materials, agriculture, water, etc.
  5. PR and advertising. This one feels like a cop-out, because of course this isn’t unique to climate tech. But, many of the companies we’re thinking about aren’t selling to consumers or giving away free software. And those that sell into the enterprise often aren’t general-purpose technologies that can be used across industries. Specialized PR and ad firms who can find out which trade publications and which conferences truly matter for each industry.
  6. IP strategy. This role (different from a company’s patent counsel who files the patents) would focus more broadly on the company’s long-term strategy for developing new IP and protecting what it invents. There’s often more that can be patented than founding teams realize and companies at the earliest stages likely don’t have anyone on their team dedicated to this important role.
  7. Manufacturing & Scale Up. Access to experts who understand design for manufacturing, who have worked with contract manufacturers in the US and abroad, and who have taken a hardware product from concept to full scale would help startups avoid the kinds of costly mistakes that have doomed many a company.

The cynic’s view on why there isn’t already a16z in Climate Tech

By disrupting the VC industry and staffing up in each of these areas, a16z was able to offer startups something they couldn’t get anywhere else. They showed companies an unfakeable signal that they were going to help them succeed. In turn, they knew, this would lead the best founders to look to them for investment.
In climate tech, I’m sorry to say, we’re not at the point where we have such cutthroat competition for deal flow. The amazing (but growing!) funding in this space can’t keep up with the number of great ideas, so VC firms don’t yet have to compete with added services.

Founders and funders: what else would you add to the list? What would you tell the people building a $10B climate fund?

VCs abandoned cleantech—here’s why we shouldn’t worry

This article was originally published on June 22, 2017 on the Clean Energy Trust blog.

Last month, the Brookings Institution released a new report on the state of venture capital funding for cleantech companies in the U.S. The piece was a follow-up to an article in April that examined declining patent activity in the sector. Devashree Saha and Mark Muro of Brookings’ Metropolitan Policy Center look at how cities and states are taking advantage of cleantech innovation to power their local economies, especially in light of waning support for R&D and commercialization from Washington.

Their conclusions — that cleantech VC funding contracted after 2008 and has hit early-stage companies especially hard — are in line with the papers my colleagues and I published last summer through the MIT Energy Initiative and in the journal Energy Policy. I suggest you read both of their pieces if you haven’t already. Here, my intention is to dig a little deeper on some of their results and focus on what it means for cleantech entrepreneurs.

The Bad News

First, let’s take a look at the downturn in funding. The chart below, which is an extension of the paper we wrote last year with data updated through 2016 compares what happened in cleantech VC to similar investments in software and biotech startups. There’s no question the financial crisis in 2008 hit cleantech startups hard, but it’s interesting to compare that to the other sectors, where the crisis was just a blip on an upward trajectory.

Cleantech funding dropped after the financial crisis, and unlike Software and Biotech, it never recovered.

After the collapse, there was still some ongoing investment in later stage cleantech, but early-stage investment fell to a trickle. In the Brookings Report, when Saha and Muro compared early stage funding (Seed rounds and Series A rounds) to later rounds (B, C, etc.) they found that investment has been biased towards late-stage deals. That’s true, and it’s interesting to compare to what we would expect to see in a healthy funding environment.

The VC model as traditionally practiced means letting many flowers bloom, knowing some will fail fast, and doubling down on winners. In a well-functioning system, we’d hope to see early rounds to comprise 75% of the number of total deals and 25% of the total dollars invested. The figure below shows that, indeed, early stage cleantech investing falls well below this benchmark.

Early-stage cleantech investing activity has fallen out of favor as more funding goes to later-stage deals and fewer early-stage deals are done.

Of course, it is possible that cleantech startups need comparatively more capital at later stages and we therefore might expect early funding to stay a bit below 25%, but the decline and relatively low levels of the absolute and relative number of early deals is frightening.

Location, Location, Location

Given the regional focus of the Metropolitan Policy Center, Saha and Muro looked at how VC dollars are allocated around the country. They found substantial geographical concentration of the location of companies that received investment:

U.S. cleantech VC investment is heavily clustered in just four metro areas — San Francisco, San Jose, Boston, and Los Angeles, which account for a massive 54 percent of all VC flows in cleantech.

They see this as bad news, but there’s another way to look at it: San Francisco, San Jose, Boston, and LA account for 64% of total VC investment. Cleantech VC is actually less concentrated than VC at large. A note on methodology here: drawing regional boundaries is tricky, and the borders have to go somewhere. The Brookings study uses Metropolitan Statistical Areas, which has the strange side effect of separating Menlo Park and neighboring Palo Alto into two different MSAs (San Francisco and San Jose). If we look at the broader San Francisco Bay Area as a whole, the concentration of cleantech VC has been slowly decreasing since the peak in 2008. Last year, the Bay Area did around 25% of cleantech deals in the US, compared to 30% of software deals.

It’s interesting to note the geographies that are relatively underrepresented in cleantech investing compared to other VC activity. San Francisco and New York, the two biggest regions for software VC over the past decade, both underinvest in Cleantech by about 10%.

What’s a founder to do?

This may seem like more bleak news for cleantech founders, but there are good reasons to be optimistic. Cleantech companies tend to raise A rounds 3–5 years after their initial founding. The crop of companies that are raising now were founded in 2012–2014 and have the advantage of a growing ecosystem that didn’t exist just a few years ago. The IncubatEnergy network of clean energy accelerators and incubators lists 35 programs founders can take advantage of (including the CET Challenge). The Department of Energy’s Cyclotron Road, Chain Reaction Innovations, and Innovation Crossroads offer funding support, lab space, and access to experts inside our amazing National Lab system.

All startups demand incredibly hard work, and cleantech is no exception. Here are a few things founders should think about as they start building their companies:

1. Don’t pack up and move just yet.

Cleantech companies aren’t as easy to uproot as other businesses. Founders often have strong scientific advisors in university research labs and sometimes already have dedicated lab space they can use. And since cleantech investing isn’t as concentrated as it once was, there’s no reason to move just yet. If anything, this trend looks like it’s accelerating. In 2016, only 20% of A-rounds went to companies in the “top 4” metros above.

2. Take advantage of local resources

Over the last 2 years, nearly 40% of companies that raised an A round came through an incubator or accelerator program, most of which were programs with a local or regional focus. These organizations exist to help companies at the earliest stages develop their pitches, business plans, and strategy. As the companies grow, the incubators plug them into the network , connecting them with customers, investors, pilot and demonstration opportunities.

The first wave of cleantech investing may have been driven by a bit of exuberance, and it is clearer than ever that traditional VC has all but fled the sector. Instead of saying “cleantech can’t be done,” founders today are finding ways to stay capital-efficient and build amazing business. The time is right for Cleantech 2.0 companies to shine.

Footnote

How much early-stage activity to we need to prime the pump for ongoing investment? Over time, successful companies move on to raise more and more money with each successive round of funding but there are fewer companies that make it to each level. For example, Anand Sanwal at CB Insights has shown that only about half of funded companies make it to the next round, but that funding for each company more than doubles in the first few rounds. In short, if we looked at each round independently, we would expect total funding to start small, grow into B and C rounds, and then gradually taper off. When we combine two early rounds (seed and A) and compare to all of the subsequent late rounds (B, C, D, and so on) we would expect 75% of all deals and 25% of all dollars to go to the early stages.

No, Tesla batteries are not a global warming disaster

But, we probably should think about the supply chain.

A new report from the Swedish Environmental Research Institute has attempted to quantify the emissions tied to EV battery manufacturing. The study aims to better understand where emissions accrue in the supply chain and to shed some light on where we can do better.

In an early piece on the Swedish website NyTeknik, another researcher from the Swedish Environmental Research Institute, not involved with the original study, did some rough calculations and came to the conclusion that you would need to drive your new Tesla for 8 years (or drive a Nissan Leaf for nearly 3 years) just to break even on CO2 emissions. This later got picked up by English-language outlets eager to publish more “EVs are actually bad for the environment” takes.

But, of course, the devil is in the details. The payback conclusion gets complicated depending on where you live, how you charge the EV, and what your alternatives would be. This means some big differences depending on whether you live in the U.S. or Sweden. For example:

  1. Swedes drive less than we do,
  2. Swedes buy more efficient conventional cars than we do, and
  3. Swedish gasoline/diesel is cleaner than ours.

(On the other hand, charging from the grid is likely to be much cleaner in Sweden. More on that in a moment.)

The payback period assumes someone drives 7,650 miles/year, fuel is 18% bio-based, and that the average tailpipe emissions of new cars is 208 g/mile.

By contrast, in the U.S. we drive around 11,000 miles/year, our passenger fuel is mostly gasoline with 10% ethanol, and average tailpipe emissions are about 350 g/mile.

Of course, we also need to think about the emissions related to charging the EV during use. The Tesla driver in Sweden can top up with very low-emission power: Sweden’s energy mix is nearly 50% Nuclear and 50% Hydro. The average U.S. energy mix is more like 65% fossil, giving us emissions per EV-mile of something like 176 g CO2.

Once we account for higher-emission conventional cars one the one hand and charging from a higher-emission grid power on the other, it seems like the CO2 payback period is about the same in both countries.

Tesla’s Gigafactory is Carbon Neutral

The report assumes that the energy used in manufacturing the battery is 50% fossil-based. Tesla has long committed to making its Gigafactory carbon-neutral, and appears to be working towards that goal. The original research states that about half of the CO2 impact of battery manufacturing occurs at the battery plant, while only 10–20% comes from mining and the rest comes from materials production. That means, for the Tesla batteries at least, the CO2 emissions payback is halved.

A Cleaner Grid Matters Here

We saw the same debate play out a few years ago when researchers showed that if you charge a car from a coal-fired grid, your emissions reductions are limited. While that’s certainly true, the grid is getting cleaner over time. Today you could charge your Tesla from your home solar system, or — soon — from Tesla’s all-solar Supercharger stations.

The Bottom Line

Under the assumptions above, the CO2 payback for a 100 kWh Tesla battery comes out to about just under 3 years in the best case and 6 years in the worst case.

The average car in the US lasts for about 8 years, but many don’t expect EV batteries to last that long. On the other hand, lots of people are trying to figure out how (or whether) to give the batteries a second life, for things like stationary storage.

This research is a great step towards understanding the climate impact of a long supply chain, and it highlights the need to think about responsible sourcing and energy-efficient manufacturing. It should also highlight, yet again, that as transportation becomes increasingly electrified, a clean and reliable grid is more important than ever.

But, it doesn’t give you an excuse not to buy a Tesla.

ARPA-E: Commercializing Energy Innovation

Commercializing Energy Innovation

Last week the energy innovation community gathered outside Washington, D.C. for the eighth ARPA-E Summit. The event brings research and commercialization together in a way that few other events do. ARPA-E staff pitch their ideas for the future of energy, transportation, cities, and food. Leading scientists explain how they push the frontier of innovation in energy and materials. The technology showcase lets ARPA-E awardees highlight the progress they’ve made over the course of their 3-year grants.

But the Summit doesn’t just spout techno-optimism. The conference balances technical sessions with panel discussions, keynote speeches, and fire-side chats that offered practical advice on how to commercialize those innovations. It was fascinating to understand how these experts think about building and scaling cleantech companies.

I had the honor of moderating a panel featuring some of the smartest people in the field:

  • Ira Ehrenpreis of DBL Partners, a Director on the board of Tesla and one of its first investors;
  • Mike Biddle of Evok Innovations, who built one of the world’s leading advanced recycling companies and now is an early-stage investor; and
  • Michael Horwitz of Greentech Capital Advisors, an expert on mergers and acquisitions in the cleantech sector.

The discussion was lively and featured plenty of tales from the trenches. The summit also featured an excellent discussion with Ajay Royan of Mithril Capital Management, which he co-founded with Peter Thiel and has $1.5B under management, and a panel on alternative capital solutions that featured Jeffrey Sirr of Munich Re, one of the world’s largest re-insurance companies.

Throughout these sessions, the conversation kept returning to the importance of Risk, Markets, and Team. Of course, startups in any sector have to think about these factors but the investors explained why the nature of energy and cleantech has a multiplying effect on these challenges. As Ajay put it: You have to focus on quality of market, then product, then founder. It doesn’t work in the reverse order. The biggest problem in commercializing hard tech is the friction cost associated with entering the market. He calls this “artificial friction” and emphasizes that this makes it more challenging.

What follows are some of the most interesting things I heard at the Summit — things I think anyone in the sector should keep in mind as they build and grow their business.

On Markets and Market Adoption

Ajay channeled Warren Buffett in his focus on the market first: If you put a brilliant team up against a tough market, the market always wins. He emphasized repeatedly that energy is so tough because it’s a commodity. It’s difficult to price a premium product. In any industry, he said, new products hit a barrier of market access. Even if it’s a great product and it works well, no one adopts it. Energy startups need to think about how they will break that wall, even on day one. How will they ease that friction? According to Ajay, the only way to do that is through product. He offered a particular challenge to energy startups: If you have a great innovation that then needs a whole support mechanism and consulting firm to work with customers to get it adopted, it’s not likely to work. This really matters because even though you can show — analytically and through pilots or demonstrations — that this product works, you end up spending all your capital on adoption friction costs. So then you need to raise another $100 million just to get the product in the customers’ hands. So what’s the result? New innovations aren’t being adopted as fast as they’re being created.

Perhaps Ajay would be interested in the solution proposed by Jeffrey Sirr of Munich Re who has been exploring new ways to insure against the risk of adopting new technologies. For instance, suppose an energy storage startup had a new flow battery technology and found a customer who was interested in the improved technology, but was unwilling to take the risk that the batteries didn’t live up to expectations. Munich Re would do their technical due diligence and underwrite the performance of the batteries. If the batteries failed, the insurance policy would pay out and make the customer whole again. This approach seems like it would assuage at least some of the fears of technology risk. Of course, insurance adds cost, but Jeffrey maintains that the insurance underwriting can also help secure less expensive debt to finance the project which may make up for the additional cost. A general overview of these types of mechanisms can be found at the Climate Policy Initiative. This is an exciting space to watch and it will be interesting to see if the model is sustainable for earlier stage smaller deployments.

On Team

Ira, Mike, and Michael acknowledged the realities of the cleantech markets, but for them this means the team is even more important. When they evaluate an investment, they ask themselves whether this team can “stare death in the face and survive.” Each shared a story where the company would have gone under but for the extreme resilience of the founding team.

For founders, the message is clear: you have to be fully committed to the business. As Ira said “This company can’t be the second or third most important thing in your life. If you want to make it, the company has to come first.” Building a business, especially in this sector, requires complete dedication and investors need to see that commitment.

On the Sector and Investment Theses

Based on his evaluation of the Market, Ajay shaped a contrary investment thesis at Mithril. “Cleantech was being talked about as religion. But most people in the world were still going to use oil and gas, and 20% of power was nuclear. This is where we started spending time.” He went on to emphasize that it is key that the underlying product is “long on technology” — meaning that as technology improves in the future, the product gets more competitive, not less. He used solar as an example — emerging technologies like thin-film solar were “short” innovation. As Chinese manufacturers glutted the market and costs came down the learning curve, the new technologies couldn’t compete. He likened this to companies in the IT sector: Cisco would be hurt by foreign innovations in router technology, while Facebook, Apple, Netflix, and Google can all take advantage of it.

On Long Technology Development Cycles

Mithril isn’t afraid of long development cycles — they have invested in nuclear fusion startup Helion Energy. When asked how they can make decisions about a company that has such a long road ahead, Ajay said you have to do all the underwriting up front. He says they treat diligence meetings as board meetings that will happen in the future. He asks the founders “What is it that you would talk about at a board meeting next week?” What challenges are you facing right now? What are the strategic decisions you need to make in the next 6 months? He emphasized that this is good for founders too, because “capital is marriage and you want to be with investors who you can talk to about the really thorny issues.”

As for the long time-horizon, Mithril has the added advantage of being structured as a 12-year fund (as opposed to the more common 10-year fund). Here, he channeled Buffett again: “Time horizon arbitrage is avail to all of us. If you can operate rationally on a five-year horizon, you are in an elite category.” It is certainly an open question whether a 12-year fund is long enough for breakthrough energy technologies that still have 5+ years of R&D before they’re commercially ready. If 12 years isn’t enough, those companies must find other ways to fund their development in the interim.

On Exits

Venture capital is a high-risk, high-reward business. At the end of the long road of technology commercialization, a startup turns into a successful business selling product and delighting customers. But, for companies backed by outside investors, that reward can only be realized when the startup goes public or gets acquired. One of the biggest problems facing cleantech companies and their VC investors in the last decade was the lack of acquirers. It looks like things may be changing. According to Michael Horwitz, there has never been more activity in cleantech M&A than there is today — this is great news. The pathways to IPO, unfortunately, may not be looking any brighter. As Ajay put it “you have to be the last company that matters in your market before you can go public” and contrasted this with the go-go market in the mid-1990s: “Go read S1 filings from ‘95.”

I’m very grateful to Danny Cunningham at ARPA-E for the invitation to moderate the panel and to the rest of the ARPA-E staff who made the event a success.