What Will it Take to Create a Netscape Moment for Cleantech?
John Doerr, the brilliant and hard-charging venture capitalist (pictured above, at left), has told me several times that cleantech is still awaiting its “Netscape moment.”
What he means, I think, is that investors will get excited about start-up companies across a range of so-called “clean technologies” — solar, wind, biofuels, energy efficiency, green chemistry, lighting — when one of them has an attention-grabbing initial public offering like Netscape’s in 1995 which, by some accounts, set off the Internet investing craze.
I don’t see a “Netscape moment” on the immediate horizon for cleantech but, of course, no one knew that the Internet browser company would take off before its IPO. But if we are to get the clean-energy transformation we need, enormous amounts of capital will be required. So any evidence that investors are warming to cleantech companies is welcome. I’ve seen several encouraging signs lately.
The first, of course, was Tesla’s electrifying IPO. (Sorry, couldn’t resist.) The stock, priced at $14 to $16 a share, climbed to nearly $24 on its first day before falling below $20 by week’s end. The investor enthusiasm, I’d guess, was more about the potential for the electric car industry than about Tesla. The company has piled up $290 million in losses and would be stalled were it not for a $465-million loan from the U.S. Department of Energy, which, in a way, makes all of us investors in Tesla. The carmaker will need a lot more capital than the $226 million that it raised during its initial offering to produce cars at scale and make money. Tesla had sold only about 1,000 cars through March.
Still, electric cars are coming. BMW is getting serious about building one, as The Times reported a few weeks ago. The paper quoted Kai Petrick, a BMW strategist, as saying: “The departure from fossil fuels is an irreversible trend.” The Chinese firm BYD is moving ahead, as are Chevrolet with its Volt, and Nissan with the Leaf. Whether or not Tesla succeeds, money will be made in this sector, and investors appear ready to jump in.
The second promising development is the fact that about $2 billion in investments went into 140 cleantech companies during the second quarter of 2010, according to the latest report on cleantech venture investments from the Cleantech Group and Deloitte. That’s about the same as the first quarter, and up by 43 percent from the very sluggish Q2 in 2009.
Some money is coming from traditional VCs but much is coming from big companies, who are more cautious in their investing approach; this is a sign that the startups have good prospects. Top deals included investments from Intel Capital, GE Capital, Shell, the Brazilian conglomerate Votorantim, the French power firm Alstom, and Cargill Ventures. Utilities also stepped up their investments in wind and solar generation.
Scott Smith, Deloitte’s cleantech leader in the U.S., is quoted in the report as saying:
The significant strengthening of corporate and utility investment into the cleantech sector, relative to 2009, is very encouraging, given the key role they will play in enabling broader adoption of clean technologies at scale.
Breaking the investments down by sector, the report says:
About $811 million went to 26 solar companies including Solyndra (which withdrew its plans for an IPO), BrightSource Energy and Amonix, whose investors include Kleiner Perkins, where John Doerr and Al Gore are partners.
About $302 million went to 13 biofuels companies including Amyris Biotechnologies, another Kleiner Perkins portfolio company, and Virent Energy. Amyris, which makes malaria vaccines as well as biofuels, has filed for an IPO.
About $256 million went to 11 smart grid companies, including Landis + Gyr, OpenPeak and GreenWave.
Finally, I recently spoke to a cleantech analyst named Tim Sullivan, who works with an interesting website called Sharespost, which enables the buying and selling of shares in private, venture-backed companies, including those in cleantech. The sellers are primarily former employees of startups who want to unload their stock; the buyers must be so-called accredited investors, with a high net worth.
“People who have been with the company, investors or employees, may need liquidity,” Sullivan told me. “The financial markets are still in turmoil. It’s not a great time to have an initial public offering.”
Sharespost offers a window into what some buyers and sellers think private companies are worth. Tesla shares, for example, traded late in 2009 and early this year for between $4.75 and $9 a share, so the buyers did very well if they chose to sell their shares after TSLA went public last week.
Currently, you can find sellers offering shares of Nanosolar for $2 to $2.60 per share, giving the company an implied valuation of between $370 million and $481 million. Buyers, meanwhile, have offers outstanding for Solar City that value that company at between $240 million and $302 million. Silver Spring Networks, a Kleiner Perkins-backed smart grid company, has both buyers and sellers who value the company at $1.7 billion to $2 billion. Sharespost also offers free research and news on the companies that it tracks.
When I asked Sullivan to name a company that he thought was ready for an IPO, he mentioned Silver Spring. “Most of the large utilities are customers,” he said. “They are doing quite well from a revenue perspective.”
Sullivan identified three obstacles that are holding back cleantech companies. First, many are capital intensive. Second, they are policy-dependent and “politically, oil, coal, and natural gas have a lot more muscle.” Third, they are complicated. “The thing about cleantech,” he said, “is that there are so many technologies, and they are so different from an engineering perspective and they have very different businesses.” Investors and analysts have a hard time understanding them.
So, as I said, cleantech isn’t ready yet for its “Netscape moment.”
And that may be O.K. Netscape set off a bubble, followed by a collapse. And Netscape itself? It was acquired by AOL and gradually withered away.