It’s that time of the year when pundits and prognosticators begin to opine about what will happen in 2012. Frankly, I don’t like this game. In mid-2001, I worked for a technology “futurist” firm and wrote a piece predicting that CD-R/W music players would continue to dominate in the year ahead. That was a couple months before the ipod came on the market and made me look like a fool. Not that I mind looking like a fool, but I think I’ve shied away from these declarations ever since.
However, I was inspired this week by Rob Day (@cleantechvc) to throw my hat back into the ring. Why? Because Rob actually went back and wrote a post critiquing the predictions he made from the previous year. I found this remarkable precisely because most analysts write these odes with zero accountability. As an investor, Rob actually has to bet on his predictions, so I enjoyed his self-critique. I promise to do the same – someone hold me to it!
So without further adieu, here are my top 5, slightly irreverent, predictions for cleantech internationally in the year ahead. Why international? Because I’ve spent most of the last 6 months outside the U.S. in search of cleantech hotspots and it’s on the top of my mind… more importantly, I think that the U.S. cleantech sector is a bit boring – for more see #5.
#1 China will continue to be irrelevant for most startups: What? Has he lost his mind? He’s only on #1 and he’s already a fool! Does he know how big the Chinese market is? They have 150 cities poised to have more than 1 million people! Yes, I know that. I was just in one of those cities that you likely have never heard of even though it’s clear you can parrot how “BIG” the China opportunity is. I have sympathy. I was in your shoes a year ago. Please, spend some time in China before you judge. China doesn’t want cutting edge. They want infinitely scalable, proven technology. They don’t need 2012 when 1999 would be a massive improvement. Combine that with cliché, albeit entirely warranted, concerns about intellectual property and I would personally be quite cautious as a startup CEO. I think you could waste a great deal of time trying to figure out China without much success. 1st Caveat: When the Chinese see something they like, they will buy into it and bring it home (see Boston Power). If you really want to play in this market, you best be living there. 2nd Caveat: If you’re a well-established mid-size company or a major multi-national, ignore this point and get to China. You don’t need me to tell you that, you’re already there.
#2 Korea’s stealth strategy to dominate cleantech will be unmasked. They will non-stealthily continue their successful march: Has anyone noticed how many recent, large deals, specifically solar, featured Korean investors? Hanwha Solar was a major player in OneRoof Energy’s recent $50M round. SK Group led an $80M round in HelioVolt. To top them all, AVACO and a group of other Korean private equity investors helped pour $130M into Stion. Korea’s chaebols , both the ones you’ve heard of (Samsung, SK, LG, Hyundai) as well as the ones you haven’t (POSCO, Doosan, GS Group) are committing massive amounts of capital to a variety of cleantech markets. Couple that with an economy that has mostly weathered the global recession in decent shape and you have the recipe for a cleantech powerhouse.
#3 The French will spend some time digesting, but will continue to eat well in 2012: The French always eat well and their major power and water players have proven to be similarly hungry acquirers. Take a stroll of La Defense in Paris and you’ll walk past a veritable who’s who of the cleantech market. Looking up you’ll spot corporate signage for Alstom, Areva, Total, EDF, GDF Suez, and others. Hop the RER A line a few stops west to Rueil-Malmaison and you’ll find Schneider Electric’s innovative “Hive” facility and Veolia’s innovation team. This is no secret. Earlier in the year, GTM listed France atop its list of 2010’s Green Giants. I would not be surprised if there are some oversubscribed French language classes in Silicon Valley as startup CEOs try to brush up to impress on their next trip to Paris. In all seriousness, I think that the large French players will continue to be major acquirers, but the time has come for some internal reflection as they attempt to turn new assets into well integrated solution sets. Schneider, Alstom, Total and others have laid claim to a variety of interesting technologies, but will need to spend some cycles digesting as they weave them into coherent corporate stories and technically sound architectures.
#4 International LPs will give Israeli cleantech VCs a boost; Israel will wake up to its true cleantech potential: Ok, this one is more a hope, or a flagrant promotion, than a prediction. I take no accountability on this one, I may just be stumping for something that I believe in. Israel, as it does in many other innovation sectors, should be punching far above its weight in cleantech. Yes, Israeli water startups are already the talk of the world. If you genuinely care about water technology, you were at WATEC in Tel Aviv in November. But there is so much more potential. The Israeli government, via the Office of the Chief Scientist, former venture capitalist Avi Hasson, has a variety of ambitious grant and incubator programs for cleantech startups and a model that combines public and private capital to launch new ventures. Israel, as I’ve written previously, has more to gain strategically from energy independence than perhaps any other country on the planet. The rub, as I see it, is that the country is prolifically good at incubating technologies, but is not particularly skillful at building companies. The model, well chronicled in Startup Nation, has mostly relied on Western acquirers buying early-stage ventures (read “engineering teams”) as Israeli outposts. I don’t see this template working quite as well in cleantech for a number of reasons that I won’t elaborate upon here. The point is that Israeli cleantech ventures must position themselves with both the right financial and management capabilities to grow into true enterprises. The country however faces a shortage of post seed/Series A capital, but should be a logical place for international investors looking to gain exposure to some of the world’s top engineers and scientists. I’d like to see more international LPs putting money to work with Israeli GPs as I think that there are scores of incubation stage ventures heading for a cliff that merit much more runway. As they say in my faith, “next year in Jerusalem.”
#5 The U.S. cleantech market will continue to defy any hyperbolic predictions in 2012 either positive or negative: You think that Solyndra’s failure is going to sink the U.S. cleantech sector? Or perhaps you believe that the cleanweb is going to have new smart grid startups commanding consumer-web-like valuations? I think both camps are probably wrong. More likely, I think that the U.S. cleantech sector is going to stay the course and be a bit boring in 2012. Yes, smart grid rollouts will forge slowly ahead, we’ll get some breathless coverage of electric vehicle sales, and there will be a steady stream of solar projects thanks to cheap Chinese panel imports, but in general it will be business as usual as the country takes a 9 month hiatus from doing anything meaningful – a period that we affectionately call our Presidential election cycle. The sector with the most tangible excitement at the moment given the recent $4B Better Buildings Initiative announced by the Obama Administration is energy efficiency. Yes, this has been an area of strength for U.S. startups [insert the requisite mention of C3, SCIenergy, Hara, Serious Energy]. And yes, big U.S. based players such as Johnson Controls and Honeywell are vying for leadership everywhere on the planet. That said, let’s not pretend the building retrofit market is about to become a sexy, hockey stick growth story. It’s going to be a pretty good story and there is nothing at all wrong with pretty good. Auditors will trudge through buildings, equipment will get replaced, companies will make a nice, neat profit and most will be home in time to catch Monday Night Football. Like I said, U.S. cleatech will be a bit boring. If you want excitement in 2012 be prepared to add some stamps to your passport.
There you have it, Greg’s Top 5 Global Cleantech Predictions for 2012. If any of you are actually still reading this far, thank you! May your New Years bring you joy and prosperity. And may we all help to make the world a cleaner, more efficient, and more sustainable place in 2012!
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