Friday, October 16, 2009

Human Capital, Not Venture Capital, the Biggest Cleantech Challenge

Building great businesses typically requires three key ingredients:   phenomenal people, compelling technology and investment capital.  Cleantech companies are no exception.   While cleantech venture capital investments have expanded rapidly, averaging an annual growth rate of 65% over the past five years and now representing over 15% of all venture investments, the compelling technologies are mostly early in their development cycles and the human eco-system for early stage cleantech companies is in its infancy.  There is much buzz about the venture capital and government funding that is being invested in cleantech companies, but the immaturity of the cleantech entrepreneurial ecosystem is overlooked as a significant challenge in accelerating the growth of successful cleantech companies.


In the more traditional areas of VC investment such as software/internet, life sciences, and semi-conductors there are a relatively large number of successful entrepreneurs who have had exit events that made them wealthy.  These individuals are the most likely source of smart early angel financing for other start-ups in the same sector.  I emphasize “smart” because angel investors who invest in companies within industries that they know well not only make wiser investments but also can add real value to those businesses.  And they tend to be more prolific investors within those industries for just that reason.  The reality is that the list of successful cleantech entrepreneurs, where success is defined by a healthy exit event, is very short. 


Early stage cleantech companies struggle much more than companies in traditional areas of venture capital to find wise angel investors, or advisors and executives with both industry and entrepreneurial experience.  While crossover entrepreneurs – those with success in a different sector who desire to get into cleantech – can be helpful and bring valuable wisdom, nothing can substitute for the valuable knowledge and experience gained by building a company within the same sector.  Efforts like the Cleantech Open , some of the emerging cleantech incubators (like CleanLaunch, Austin’s Cleantech incubator and San Francisco’s incubator) and cleantech network groups (like Colorado Greentech Group, the Renewable Energy Business Network and the CleanTX Foundation) can assist in the tough challenge of bringing the right mix of entrepreneurial, business and industry expertise together for an early stage cleantech company.  But, in the end, only time will fully cure this problem by generating experienced and successful entrepreneurs who can breed the second generation of cleantech companies.  In the mean time, the challenges of growing and investing in early stage cleantech companies are as great as they will ever be.  Fortunately, I believe, the rewards will be equally great.

9 comments:

whitect said...

As a professional who has marketed High Tech / Enterprise Software both in Silicon Valley and on the East Coast for the past 15 years, I wonder if you see sufficient synergies between High Tech and Clean Tech to tap leaders in my industry for this CleanTech Challenge.

Many like myself are contemplating a career change into Clean Tech companies, and consider our horizontal skill sets to be directly applicable to the needs of this new vertical market. I sense the VCs and Clean Tech leaders don't quite have the same confidence.

The article attached got me thinking about this potential migration - and I think there is plenty of Human Capital available, at all levels, if Clean Tech is willing to think outside their comfort zone.

http://earth2tech.com/2008/05/05/25-who-ditched-infotech-for-cleantech/

Ski Milburn said...

I couldn't agree more with your comments on the lack of experienced human capital in cleantech, but why stop with the entrepreneurs and the angels? There aren't any VCs or investment bankers with deep domain experience and a fat portfolio of successful exits under their belts in the space either.

There aren't many "shrink wrapped" Cleantech product opportunities, most of it is capital intensive, long to market, durable goods. Cleantech opportunity/risk/time/capital metrics just don't compute for people with deep expertise in "technology", (one of the most misused terms in the world), and I think its a big challenge for them to map their skill sets to the new world.

In the natural order of things, cleantech will generate angels and then VCs from the pool of wealthy entrepreneurs who've bootstrapped their businesses to lucrative exits and are ready to lend their expertise and capital to the next wave. That's going to take a while, and the Chinese will get there first.

Kris de Leon said...

I enjoyed reading your article, and agree with your comments. I specialize in recruitment within the Energy and Cleantech sectors, and although there are an abundance of candidates in the market, it's still a challenge finding a candidate with specific skills sets that could add value right away and hit the ground running.

Within Cleantech, there are several sub niches, each with its unique product offering and supply chain. Each niche is also at a different stage of its development. For example, Renewable Energy (Solar and Wind) is at a bit more at an advanced stage compared to Smart Grid and Energy Storage, which are still in its infancy. Even within the sub niche Energy Storage, there's also variations in development - battery manufacturing has been around for a while, compared to those companies prototyping hydrogen or air-compressed storage.

Whether an entrepreneur who has successfully started a Solar company will succeed in another Cleantech niche, like Biofuels or Energy Storage, it's too difficult to tell at this point, since there aren't that many real examples or precedents that I can think off the top of my head. I'll do a bit more investigation on this.

I'm excited to see how this industry evolves over time.

David Hawthorne said...

The problem with getting the best talent is not limited to 'Green or Clean" tech. misalignment of talent with challenge is endemic, and works against the effectiveness across the entire economy. That said, "Green" talent is paramount importance not only for what it can do for the environment and investors, but for what it can do to "unlock" the talent market.

Talent markets, in short, are fictions. They don't exist. So-called passive job seekers (85% of employed workers) stay out of the market in good times and bad, afraid of repercussions from current employers, or just indifferent to moving on or up.

Employers also operate "talent lock ups." They allow managers to embargo talent but not insisting on "open" access to information about high performing talent within the organization. They intimidate talent, letting them know that "looking" could be considered disloyal. They practice "mushroom" talent development by keeping talent in the dark about both threats and opportunities from inside and outside the organization. In the end, they encourage "gaming" the system by having no effective process for making talent visible within their own operation (afraid competitors will steal them or other departments will tap key players).

Finally, in bad times (like now) we fall back on state and federal government sponsored programs that are geared almost exclusively to filling in the labor pool at the very bottom. High quality talent is effectively channeled to 'low paying' jobs. Lack of education and training opportunities in key 'growth' sectors is profound. You can, if you are a Native American find government training programs to train as a casino worker. Hmmmm.

So what's this got to do with 'Green?'

The Green Sector has meets all the conditions necessary to provide a "strange attractor," (the phenomenon the prompts new patterns to emerge from old ones in organic systems).

As you note, the 'Green Sector' is immature. It has not yet formed all of its capabilities, nor necessarily determined everything that will need to be "filled in". It will need to draw on "existing" talent and know-how to formulate many of its processes and procedures. It will have to have form "reciprocal relationships" with pre-existing entities throughout the socio-economic environment. It will grow and spread, not like a rising tide, but like a wind blown forest fire, skipping from here to there, and catching on wherever conditions are right. It will be local, but on a global scale. The talent needed will probably not be co-located with the task. There will have to be an open and sustainable flow of talent, capital, knowledge, and social resources. It will have to re-organize itself and learn new solutions for new problems consistently.

The talent market must reflect these dynamics. It must me open to talent that wants to be visible in the market, and visible to organizations with critical needs.

The 'big' staffing companies already get this and they are hopeful that they can acquire access to a global pool of talent and make it accessible anywhere, anytime, for any duration. Whether this is in the best interest of "talent." is unknown, but in the absence of a functioning and effective open talent market, it is a very likely specter.

An Open Talent Market for the 'Green Sector" (and healthcare, and the well-being of talent generally) is essential. The technology exists; it's been built, tested, functions, works. The hold-up is resistance from corporate HR self-interests, institutionalized indifference in the post-secondary education sector (that believes its obligations to society ends when students obtain a credential)and the deeply entrained belief that careers are a matter of luck rather than skill, knowledge and access. We seem to understand how important it is to manage our "financial portfolio" and the "significance of its value in a market", but we do not apply the similar vigilance to the value of our personal talent portfolio and its worth in the marketplace.

-David Hawthorne

Anonymous said...

I strongly agree with your assessment. Here in Colorado the problem is further amplified. While we do produce significant Cleantech IP and certainly have solid engineering talent in the area, we lack the executive training grounds that abound in Silicon Valley: leadership hot-houses like Cisco, Google, Apple, Yahoo!, HP, etc.

I am keenly interested in helping to lessen this issue for our state so that we can locally monetize our IP. While we obviously cannot conjure Silicon Valley's ecosystem, I believe we can positively affect the Cleantech economy by addressing the leadership problem for early-stage Cleantech companies.

Do you think there is a solution to this problem beyond patiently waiting for execs to learn by trail and error?

-- Adam Rentschler

Eric said...

I just found out about this blog today so I apologize for repeating things that were said previously.
Here are some thoughts.

There is immaturity in the cleantech entrepreneurial ecosystem. There is also immaturity in the due diligence of the VC and government funding. From a scientific point of view, many dollars are chasing things that had no hope of working in the first place. An entrepreneur's elevator pitch may be simple and enticing, but the investors do not have the patience or the due diligence to determine whether the idea is scientifically possible or economically feasible.

The second law of thermodynamics is still true whether the government or VCs want to believe it. Lots of projects fail this second law--no free lunch--test. Yesterday's failure was an attempt to use trees that grow in brackish water to provide biological desalinization. It turns out that the trees die in sea water, won't make fresh water when the humidity is high in the green houses in which they are to be grown and, for the city of Los Angeles' fresh water needs, you would have to have a greenhouse 900 miles on a side with a really big dehumidifier.

@whitect
We are making engines that will be 60% efficient and produce electricity at less than $0.06 per kWh. A part of this engine is a control system. Our novel control system is actually a platform technology. We need computer talent to extend this technology in Clean Tech and beyond.

@skimilburn
We have two shrink wrapped technologies. I agree with your comment on technology depth. We have worked hard to get that depth. Most others have not done the work yet. In a narrow example,our particular technologies appear to require a year's worth of additional work on the part of a technology expert to understand them. This extra work is one of the things that makes our IP strong but is daunting to people who want to understand the technology in detail.

@Kris

In my day job, I do technology. At other times, I am a bird dog for people like you. My contact list is in the thousands and covers the people you are trying to find. My contact list is this large because I need talent across a lot of fields. I agree that finding the right talent and then enticiing them is difficult and time consuming. For instance, the world's supply of anaerobic biologists who can grow bacteria to convert cellulose to ethanol is very small. The experienced ones don't want to move.

@Adam
I am in New Mexico. There is a solution to your problem. Waiting is not it. The solution takes serious work. Contact me at [email protected] or look me up on LinkedIn for further information.

Great thanks to David and everyone else here. I hope that I am not wearing out my welcome.

Ben Budraitis said...

Your comments are valid and maybe a tad fatalistic. We can't stand by and just say "oh well" and have a chicken or egg debate.

The reality is technology and skills will come out of the Universities. Students need to want to be engineers, yet we have a shortage there. Building the industry organically will take time.

So, you have to find solutions to bridge the gap. Cross-over skills from experienced leadership, is the shorter putt and with this level of experience and maturity comes the desire to learn and educate.

There are tools and strategies that help speed success throughout an organization. Effective leaders recognize this and surgically engage to keep their focus on what really will drive success.

Find the leaders and you solve the problem.

Eric said...

The leaders need to have talented, cross-trainable followers. The followers are not as hard to find as the leaders but they are hard to find.

Eric said...

David,
Nice comment. You and I could probably extend these notes for many pages, but, to me, you were right on target.

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