Will the Economy Sink Renewable Energy and CleanTech?
It already has to some extent. I hate to be overly pessimistic, but sometimes you can’t just “make do.” With the exception of high expectations from the Obama administration, things don’t look particularly great between the news of job cuts from Ausra, SunTech, OptiSolar and the abysmal rate at which new companies (and projects) are getting financed. Since the valley-jarring Sequoia deck slowed down bandwidth throughout the bay area in a display of viral marketing that rivaled anything put together by web 2.0 gurus, valuations have gone down, budgets have gotten stretched, and start-ups with great teams and traction have been told to jog in place.
To be clear – the current state of affairs is certainly not Sequoia’s fault – all they did was send a clear warning to their VC brethren. Without a clear horizon for when more funds will become available, many companies that are developing technologies and meeting agreed-upon milestones are struggling to find the cash for follow on rounds. While they scramble for dollars their values plummet as they let employees go. Having made big bets early with the expectation that 1) valuations would rise if targets were met and 2) syndicating further investment rounds would be a straight forward process, early stage investors like Khosla Ventures and Kleiner Perkins (KPCB) are particularly at risk. Now that valuations are plummeting, their investments – should they find further funding – will be diluted heavily.
On Tuesday I wrote that MMA’s success won’t be measured by its past performance deploying capital but rather on how quickly it can raise its next fund. The problem is equally pressing on the Venture Capital side; KPBC is seeking funds to extend the life of some of its investments, allegedly opening the door to new LP’s (limited partner investors).
The frivolous use of equity financing by venture capitalists in 2007 and 2008 has reared its ugly head. Like the picture, there are some things you take for granted in good times. Going forward, debt financing will have to be used more cleverly to fund the less risky portions of capital investments, specifically in expensive plant outlays that have value in other applications. Naturally, the problem is that this fact is becoming patently clear just when there isn’t debt out there for the taking.
Why did investors and CFOs use equity to finance the projects and these companies? Well, debt takes longer to justify, and during the heady times of CleanTech time was of the essence. Installing plants was critical for keeping a company’s name in the green energy tabloids. Those that will suffer are the equity investors and the entrepreneurs and scientists that were focused on their projects that failed to realize until too late that venture capital should be used to fund salaries and the tech-risky and proprietary portions of a company.
As for finding a job in clean energy, if you are a generalist, you’ll likely have to wait; right now you just can’t add value to the bottom line because there is nothing to market or sell, however experienced scientists and engineers are still going to be needed to prove their founders’ claims. Once they do, and legislation stimulates debt financing, the market will pick up but career changers will need to network and make relationships to beat out those that were just released from service at companies around the globe because they have the rolodex to find the deals.
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