VCs will continue to gravitate to propositions that hold ‘today’ value not bound to imprecise forecasts. DORON BEN-MEIR
By Doron Ben-Meir
The 1970s and 80s saw the rise of computer companies, the 90s brought us the internet boom, and now we have the era of climate change and clean technologies.
Such trends are always based on solid supply/demand principles, however once they become the topic of everyone’s barbecue conversations, chances are that the hype has outpaced the substance.
The area of cleantech investing – particularly given the politically charged nature of the climate change debate – does raise a classic question in the context of venture capital and that is the extent to which the regulatory environment of the day impacts on the viability of a value proposition.
The cleantech sector comprises a number of elements of which only one is alternate energy generation. Other elements include efficiency, recycling and sustainability technologies. Irrespective of the element considered, there will be some propositions which present compelling value propositions in the current regulatory environment (such as no price on carbon dioxide emissions) and there will be others that require some form of price regulation in order to be competitive.
From an investor’s perspective, there is no doubt that the former is preferable. Any reliance on an artificial regulatory setting exposes a business to political whim. When VCs invest in early stage companies, they are typically investing with a three to six year time horizon which might see several changes of government across the addressable market.
With respect to alternative energy generation for electrical power and transport applications, we face a number of interesting issues at a global level.
First, from a supply/demand perspective, what are the current global reserves of oil, gas and coal and how long (on current consumption trajectories) will these reserves last?
Second, what really are the impacts of rising atmospheric concentrations of carbon dioxide and how might one actually put a price on these impacts? Despite the voluminous public discourse and countless studies, it is clear that we are dealing with imprecise climatic and economic models.
The suggestion that the “science” is unequivocal given the complexity involved should raise concerns about the status of scientific rigour in our societies. After all, every scientist in the world once believed the earth was at the orbital centre of the universe until a fellow called Galileo suggested otherwise.
And finally, even accepting the current popular doctrine, there are the geo-political considerations which bring into question the unilateral initiatives of any single nation.
All of these factors have the capacity to dramatically alter the attractiveness (or otherwise) of various value propositions.
The bottom line is that no matter how much we are all interested in mankind pursuing a sustainable existence on our planet, VCs have a responsibility to their limited partners and so will generally (with exceptions proving the rule!) gravitate to those propositions that are compelling today and not potentially compelling subject to a carbon price of $xx…tomorrow.
Provided we are mindful of this reality, there are a large number of interesting opportunities to pursue… the outlook remains optimistic.
Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.