I recently celebrated my birthday and, as is typical of such events, it initiated some self-reflection. One area of reflection involved career choice. I wondered: Are those of us dedicating valuable time and careers to cleantech making good decisions? Putting aside the role that cleantech may play in avoiding a planetary/environmental disaster, what about a strictly practical or financial perspective? Will cleantech provide us with good returns on our capital (or time)?
Those of us in the industry clearly have confirmation bias. Quite simply, we’d all like to think we aren’t wasting our time (and money). But what points might we make to outsiders evaluating the industry as an investment thesis? Here’s a few:
- Follow the signal, not the noise: We at Cleantech Group have monitored the ups and downs of the industry since we helped define it as an investment category a decade ago (see here). We’ve seen results change significantly from quarter to quarter. While these findings are valuable in helping investors refine tactics, it’s important to recognize that cleantech markets are being driven by macro trends that will play out over the next few decades. These include issues like urbanization, geopolitical instability, international competition, global resource scarcity, and the need for greater productivity and efficiency. These trends will ebb and flow over time, but will not go away anytime soon. This is why we believe the cleantech opportunity will only grow larger over time.
- Don’t be misled by pictures: If one were to take a “picture” of the state of cleantech at any given point in time, it can be quite misleading. For instance, if one were to look at cleantech markets in late 2007 (and many nieve investors did) they saw a growing economy, high gas prices, capital and entrepreneurs pouring into the sector, and a generally sunny outlook. Of course, the picture looked radically different (but arguably just as misleading) a year later. Biofuels companies that were the rage in 2007 then went out of style in the capital constrained days of the bust and – after the IPOs of Gevo, Codexis, Amyris, with Solazyme and KiOr on the way – now appear to be back “in.” Today – especially in the Bay Area where Web 2.0 and social companies of various types seem to be minting millionaires every day – cleantech as a whole looks slow, capital intensive, and less financially rewarding. While we can’t be sure about the end result, history teaches us that the picture in another few years will be radically different.
- Have courage: Investors like Khosla Ventures who had a well-defined investment thesis and endured tough times with biofuel companies in 2008-2009 are now being rewarded with IPOs. Warren Buffett, who did huge deals with GE and Goldman Sachs in the middle of a global bust, has also been handsomely rewarded (Buffett of course has the advantage of many billions on a giant balance sheet but nevertheless I would argue the investments still required courage and foresight). It’s important to note that these investors didn’t display courage simply for the sake of courage. It was based on clear, long term investment theses. There is a very good chance some of these theses will be proven wrong. But having a well-reasoned thesis that is at least mostly right is what provides good investors the courage to see out the inevitable ups and downs of the market.
In short, cleantech – like much of life – is full of ups and downs. But the long term future looks as bright as ever.
To get this and other Cleantech Insights stories delivered weekly to your inbox, sign up for the Inside Cleantech Newsletter: