I've now been asked enough times, that at the risk of destroying what little edge Jane Capital may have in cleantech, I finally got around to blogging our "Rules" in cleantech investing and business in general. Hopefully it will stimulate some good debate.
One of the things that makes cleantech different from other investing areas, is the best practice rules are the opposite of what the best investors have grown up with. Maybe that's because cleantech IS energy and energy IS different.
Here is our version of the Rules:
- Energy is slow and big - Energy technology R&D and commercialization time frames are longer and costs higher
- Technology is “cheap”, the scale up is where all the risk is
- There is no disruptive technology in energy, only disruptive policies and resource shocks that make certain technologies look disruptive after the fact - a.k.a., "it's the policies (and subsidies), stupid"
- At scale, there is no capital efficient investing in energy
- Commodity prices and policy tend to be more important variables than technology and management
- Energy is at heart a resource play, the price you pay matters more than what you do with the resource
As a result we've worked out a strategic playbook:
- Look for mature technologies - if it's not 10 year old technology, don't touch it.
Limit scale up risk and look for technology with few dependencies for scale
- Embrace policy - solid policy frameworks are much better bets than great technologies. In fact, most of the serious money in cleantech has been made by being in the right place when the policies or subsidies hit critical mass, not by developing technologies after the fact.
- Expect lower exit multiples, and target lower burn rates over a longer commercialization time as a result
- Discipline wins. Think Stage Gate and SPC instead of venture style “massively parallel” R&D commercialization strategies
- Don’t be afraid to play a diversified investment strategy
- Don’t ignore Acquisition & Development as a viable growth strategy
- Don’t be afraid of good low tech deals, that's where many the cleantech hits have been (if we haven't heard "that's not a venture bet" 3 times, we tend to stay away.)
- “Powder dry approach” - deploy limited capital early on for larger stakes and focus on returning capital quickly, not rapidly deploying capital
- Secure vastly superior market intelligence before moving - stealth is pretty much a worthless strategy, you're too likely to miss key things that way.
And I thought I'd share a few paraphrased quotes told to me over the years that have helped bring these thoughts home:
A former boss, now an executive at a major utility - "the only thing that matters to the bottom line of the company are the rate cases in front of us. Nothing else we can do with customers, finance, or technology will make a difference if those don't go well."
A former head of oil company venture fund on why it takes so long to get technology into the energy sector - "we figure we are taking enough risk just letting a vendor touch our $1 billion platform."
My father in law, a long time refinery engineer and manager on what small scale means in energy - "let me take you on a refinery tour during a turnaround sometime and show you what half a billion looks like lying on the ground." Corollary, "you can't do anything serious at a refinery for less than $100 mm."
Electrochemist and long time fuel cell researcher on the challenges of making a FC last - "if you could perfectly control humidity and temperature, a PEMFC will run forever." He was pointing out that it's much easier said than done.
Energy company technology head - "I don't want to see the business plan, just show me the energy balance and the engineering behind it, and the data backing it up."