Thursday, August 4, 2016

Commentary on MIT Energy Initiative Study

MIT Energy Initiative released a highly detailed study on the state of venture funding for Cleantech.
Striking was the dismal rates of returns:
  • Companies developing new materials/process/chemicals - returned 1/6th the investment capital
  • Hardware Integration - $.05 per dollar invested
  • Cleantech Software Companies on average returned 3.5x
  • Deployment Finance Companies - returned 1/4 of investment capital

Venture funding readies a startup to ship more product during the funding cycle (for an average software startup approximately 18 months). If it’s not ready to ship in that time frame, venture funding isn’t likely a good fit. Venture capital needs to have an liquidation event before the fund matures, some number under 10 years. For solving engineering challenges in under 10 years, however difficult, it's realizable, for solving scientific challenges however that may be a moonshot. Using a Lean Startup method for productizing some or all of the technology as well as be extra innovative with the business model (Keurig/Apple/Intel/Tesla/SpaceX) can help Entrepreneurs reach profitability faster.

It’s conclusions of creating more funding opportunities via SBIR/STTR/ARPA-e/National Labs, and restructuring for long term funding vehicles beyond the 10 year cap on venture capital investment vehicles outside of venture funding should help Cleantech blossom.

Indeed, these are huge challenges to be solved, which may take longer than 10 years to realize. Given the vastness of climate change, and the time we have to implement a working solution, we need all roads to all carbon neutral and carbon negative products and technologies. The world would definitely be a better place when energy is completely clean and quite possibly free.