Published on June 29th, 2009 | by Jennifer Kho4
Can the U.S. Government Be an Effective Cleantech VC?
June 29th, 2009 by Jennifer Kho
As stimulus funding leads some industry insiders to think of Washington as “the new Wall Street” for green energy, some investment experts say they’re concerned about the government’s new role. “I worry about the government as a dealmaker in this space,” said Tom Bratkovitch, director of LP Capital Advisors, a consulting firm for private-equity investors, at a Thomson Reuters conference in Palo Alto, Calif., this week. “I just don’t know if the government is the best one to make decisions in this space.”
After all, the federal government has supported some technologies that have not panned out, while missing some that have ultimately been successful. The government also has a reputation for moving slowly – though the Department of Energy certainly is trying hard to get stimulus money out as quickly as possible – and the applications for the grants and loan guarantees can be extremely time-consuming.
The process of getting money from Washington is very different from anything most cleantech companies are used to dealing with. “There’s always a moment of sobriety when people take a first look at a solicitation and realize it’s not a grant-writing effort and really nothing like raising capital,” Steve McBee, CEO of policy consultant McBee Strategic, told me last month. “It’s a very different system, the tools are unfamiliar to them and the criteria and hurdles to get over are significant. Most companies aren’t equipped to handle that on their own.”
And the Washington and Silicon Valley cultures are a continent apart. “Washington has a very unique culture and a very strong culture – it has its own protocols and ways of doing things – and at some level, every dollar allocated in Washington has some type of political imperative behind it,” McBee said. “It’s very important to understand the nuanced policy goals behind the stated criteria to give yourself a chance at these opportunities. … That’s very difficult to do if your professional experience is entirely informed by working in the Silicon Valley investment community.”
Some insiders, such as Joe Walsh at CleanTechies, fear that political agendas might not always align with supporting the most competitive and innovative green technologies and businesses, leading the government to waste money on hopeless technologies. “We may get to the same or similar endgames no matter who is funding the technology development, but with the government doing it, it will cost A LOT more to get us there,” he wrote.
It’s not a new concern, but one that has become particularly relevant now that the government is poised to dole out more money to cleantech than ever before.
Still, private investors will definitely remain influential in charting cleantech’s course. Washington isn’t aiming to become a bank or a venture capitalist, but to incubate projects that are still too risky for equity markets, McBee said. “No one that I’ve talked to believes Washington is the solution to this problem exclusively,” he said.
And in fact, because so many forms of government assistance require matching equity, companies that get government funding are more likely to get private equity as well, said Harrison Wellford, founder and managing director for Terrawell Energy, a consulting firm founded last year.. “If it looks like you’re going to be a winner, then when you go out to get a private-equity infusion, you’re much more likely to be successful,” he said.
Image courtesy of Steve Wampler via a Flickr Creative Commons license.