What Does Groupon have to do with Cleantech?
Over at Earth2Tech, blogger Katie Fehrenbacher gives some reasons why the recent excitement powering Internet IPOs might be a boon for cleantech firms. As she points out, the venture capital game is about making money on an entire portfolio of investments, and if individual investors want to pay big for a piece of a coupon business, then VCs can cash out and cover their exposure to slow-to-grow renewables companies.
In examining the numbers, she looks at New Enterprise Associates, which is backing the Groupon IPO - likely to bring in lots of cash - and is also invested in e-car maker Fisker Automotive, fuel-cell maker Bloom Energy and thin-film solar firm Konarka, among others. A Groupon windfall might come close to the size of the diversified fund in its entirety. This could take the pressure off of those long R&D timelines, she suggests.
It's no accident that so many Cleantech VCs are headquartered in San Francisco, and have portfolios in tech (of the computer and internet variety) as well as cleantech. It's because most started up during the software and internet booms and then grew to take on green start-ups. But the latter type of investment is much more industrial, slow to develop, and capital intensive. That's why some IPO watchers (and Fehrenbacher actually made this point last month) have suggested VCs may retreat from cleantech and flow back into the faster, cleaner world of silicon.
It is probably too early in the days of Internet boom part II to tell what, if any, impact we'll see on the fundraising abilities of cleantech firms. But it's good to remember that cleantech firms compete not just with each other, but with other industries for investment dollars.
One small rule of thumb to remember is that a successful IPO for a venture capital fund brings in ten times the amount invested. They are supposed to be high-risk, high-reward bets where one good launch makes up for many failures. That is the yardstick that VCs will use to measure the success of a cleantech company IPO.