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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
May 2nd, 2008


By Brent Holliday
Greenstone Venture Partners

Making Green Going Green?

 

“When green is all there is to be, 
It could make you wonder why,
But why wonder why? Wonder, 
I am green and it'll do fine, it's beautiful! 
And I think it's what I want to be.”

Kermit The Frog, It Isn’t Easy Being Green

 

Today, venerable VC Kleiner Perkins announced a $500M Green Growth Fund to invest in global green companies in order to help “speed mass market adoption of solutions to the world’s global climate crisis”.  Well, phew.  Glad they are here to rescue us.  You knew, of course, that Al Gore is a partner of the fund.  I’m sure you could put Al’s entire knowledge of early stage companies and venture capital into one solar cell.  But he is Captain Green, saviour of the universe, so in a way it makes sense to have him aboard.

Massive private equity firm KKR announced a partnership with (drum roll please) an environmental group, the Environmental Defense Fund (EDF) to develop analytics for all of its investee companies to essentially go more green.  The theory is it will save money as well as save the environment.  Wow... Birkenstocks and Boss suits in the same boardroom.  I am struggling to see how the partners at KKR are going to drive Smart cars instead of their new Audi R8s or Porsche 911s. 

How long before we see David Suzuki sitting at the board room table of a Canadian venture fund deciding on which companies to fund while concomitantly deciding which politicians and executives should go to jail?

Somewhere Naomi Klein must be squirming... capitalists, the most evil people in her world, are going to make money on saving the environment?  Her new book will likely be about the massive government conspiracy to fabricate the global warming crisis to make a buck.

Let me just say for the record that I am in Michael Crichton’s camp regarding global warming.  Read State of Fear and think hard about whether Leonardo DiCaprio is correct in assuming that all of the science around climate change is infallible.  Interesting that Hollywood isn’t making a movie based on that story, huh?  But I digress...

What is going on here? I want to look at this green phenomenon from two perspectives.  The first is as a greedy venture capitalist (Sorry, Naomi... it probably won’t work between us).  The second is from the BC technology industry perspective.

As my friend Paul Kedrosky likes to say, there is nothing VCs like more than a bubble.  And the bubble is just forming in clean technology.  Remember that there are two distinct phases of an overhyped sector: the phase where you make money on potential and the phase where you make money from actual paying customers.  It is usually early stage investors (angels and VCs) that make money on the first phase.  Steve Jobs had the best quote ever about an overhyped sector in 1989 (multimedia) which he dubbed the “Zero Billion Dollar Industry”.  That is where we are today with Clean Tech, a definite zero billion dollar industry.  Sure, sure there are companies that have been in the environmental business for decades making money in wastewater treatment, recycling and other green areas... but technology companies focused on the new mantra (reduce carbon emissions) are just starting out on the long journey to “mass market adoption”. 

We had a mini-bubble in the industry FKA alternative energy.  Since it didn’t work out (the second phase never materialized), the clever capitalists just came up with a new name: Clean Technology.  The previous bubble was mostly about fuel cells and their non-polluting ways.  The problem with fuel cells is that they do pollute, just not locally.  Splitting water molecules to get hydrogen turns out to be a very energy inefficient process.  But the threat of hydrogen cars did have a good social benefit... it advanced the electric car technology and the battery technology a long way.  The result is the hybrid vehicle, which I suspect we will all be driving inside 5 years.

People that know how to make money are betting big on clean technologies.  The overwhelming push from governments and the developed world to lower carbon footprints is a big enough driver of the hype.  Anytime a polar bear wanders into a populated town south of the Arctic circle, we start wringing our hands more furiously. A bubble built on guilt... gotta love it.  You feel good making the investment because you are going to make money AND make the world a better place.  Here are some numbers:

  • Clean Technology VC investing in the US in 2007 was up 56% in number of deals done over 2006.  The dollar amount invested ($2.2B) in the sector was more than that invested in any of telecom, media and entertainment or semiconductor sectors.
     
  • Canada saw an increase of 40% in Clean Tech deals in 2007 over the previous year ($169M), which is very good in a year where overall VC investment was up 20% over 2006.

In BC, we have dedicated Clean Technology funds (Chrysalix) and clean technology partners in every other VC.  As a region, we tried to capture the title of “fuel cell capital of Canada” in the last mini-bubble.  That could easily translate into Clean Technology capital based on the fact that we are in the most eco-friendly region of North America and have been for forty years.  I love the irony that big business centers like Toronto and New York thought we were a bunch of tree-hugging fruitcakes for years.  Now they are flying out in their very carbon friendly private jets to see what great clean technology we have here to invest in.

I think Kermit the Frog should be the logo for BC’s clean tech industry because it wasn’t easy being green for many, many years.  Now, the world wants to be like us.  That perception could build into money for innovation, people that can and want to build big businesses and capital by the truckloads.

Whether you are a believer in the guilt that we are warming the globe or you believe that the world simply warms and cools as it has for roughly 2 billion years, it doesn’t matter.  The bubble is upon us, the masses believe we need the technology to help save us and this region is uniquely positioned to reap a lot of the benefit.  Hopefully we will build a stable industry that benefits us all after the bubble bursts as well. 

What Do You Think? Talk Back To Brent Holliday



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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