The GreenStalk

How Renewable Energy Is Different From Information Technology – And What That Means For Entrepreneurs

Fundamental Driver 1: In IT, the key is often finding or creating a market.  In cleantech, the market is usually there; instead the key is cutting cost.

1. Operational experience and ability to execute is going to be more important than creativity and the ability to anticipate demand.
2. Long-term, there will be margin pressure.  Since the final product is usually a commodity (electrons, or fuel), there is not as much ability for cleantech companies to achieve or sustain significant price premium.
3. The market is already huge.  This counters the margin pessimism in #2: while startups may not be able to increase prices, they should be able to sustain margins if they are able to dramatically reduce costs.

Fundamental Driver 2: Cleantech businesses are based on hard science, while many IT businesses are based on a concept or a customer pain

1. There will be fewer garage-startups, and fewer mini-spinouts from large firms (a la employees leaving Oracle or IBM to start their own business).
2. Labs, both academic and government, will be far more prominent in supplying technologies – and the ability to find & license IP will be critical for early-stage entrepreneurs.
3. Landmarks are different: rather than getting customers early and iterating product & features, cleantech companies must hit laboratory technology milestones, pilot projects, and extended-life stress testing.

Fundamental Driver 3: Cleantech business require longer lead times and more money than IT

1. Bootstrapping becomes much more difficult – very few companies will go from concept to IPO without private funding.
2. There will also be fewer mega-wealthy entrepreneurs, because maintaining equity will be more difficult.
3. Given the longer time from concept to revenue to IPO, there will be fewer serial entrepreneurs.
4. There may be an opportunity for entrepreneurs to specialize in companies that are in specific stages of development (e.g. proof of concept, sales ramp-up, or manufacturing scale-up).

Fundamental Driver 4: The “Cleantech” industry is not monolithic.  There is electricity generation, electricity storage, water, transportation, and energy efficiency – and each of these has 5-10 very unique sub-sectors

1. In some specific industries, experience from related fields is highly valuable.  Semiconductor experience is valuable for solar PV; oil & gas and biotech experience is valuable for biofuels.
2. It’s sometimes more difficult for VCs to add value.  Certain things transfer well: the ability to bootstrap and manage cash during rapid growth, and the ability to navigate government/regulatory issues.  However, technology expertise and market knowledge don’t necessarily translate across diverse sectors.