January 10 2013
by Scott Johnson
Is it time to look anew at Clean-Tech?
Is clean-tech the next eCommerce? Remember in 2003 how dead commerce investment was? The entire tech sector had entered the “trough of disillusionment” segment of the hype curve, and at the bottom of the barrel of tech refuse settled the consumer internet, with ecommerce flop pets.com as the poster-child of investment lunacy.
Then, in late 2005, the consumer web, even eCommerce, made a comeback. You know the story; eBay bought Skype ($2.5 billion), Google bought YouTube ($1.65 billion), Zappos and Diapers.com went on a tear, eventually getting acquired by Amazon for a total of $1.5 billion. Then there is all the value creation surrounding the Facebook and iPhone ecosystems. It was a very strong resurgence, based this time on companies with healthy financial metrics solving real problems for consumers. The reason that the hype curve has its shape is that reality lags hype in the early going, leading to disappointment and a crash. Later, assuming the original investment thesis is sound, reality exceeds the hype. That is what happened with the consumer web.
Will this be the story for clean-tech? On the plus side, this is a big market that received a lot of investment capital. The energy industry in the US is more than $1.2 trillion, and in 2011 US clean-tech investment peaked at $4.9 billion. I doubt that nothing of value will be created from all of that, and in all likelihood the good companies are under-valued at the moment. Further, my biggest win as an investor to date is a clean-tech company (EnerNOC). So there is reason to get bullish. On the minus side, our fund is too small to invest in most clean-tech companies, and commercial customers are very slow to adopt new technology. Further, the impetus to move to clean-tech needs to be consumer driven, not government-incentive dependent for me to get excited. I am not seeing that consumer pull right now. So there is still some question of the soundness of the investment thesis.
My conclusion? My negative bias to clean-tech has softened to neutral. It is very unlikely I will run across a capital efficient clean-tech deal that I really like. But the sector is off of the black list I had it on during the initial hype cycle.