It's that time of year when everyone looks into their crystal ball and ponders the year ahead. Having read several outlooks earlier in December, I noted a regurgitation of what were actually 2012 trends, such as the rise of natural gas, the shrinking of cleantech VC investments, the rise of corporate investors and the death of solar. I was inspired to formulate my own list for the coming year:
2012 was a blockbuster year for agriculture technology exits. Nothing gets a venture capitalist's juices flowing faster than nine and ten digit exits like we witnessed in 2012 (see Keith's Blog from October). With entrepreneur's having spent 2012 matching technologies, problems and markets, the VC checkbook will be wide open in 2013. Agriculture tech will be one of the top-three cleantech investment segments of the year.
Energy management technology (Grid, Building Monitoring and Control, Smart Thermostats etc.) was one of the hottest VC investing segments over the last several years. While these software-heavy technologies can be developed fast and cheap, the customers are not so nimble and this has provided a fast-follower window for the large players with trusted brands and established delivery platforms. Start-up revenue growth has disappointed and high multiple acquisitions have been non-existent. In 2013, reality will set in and VC investment into this segment will experience quite a chill.
The prototype, pilot, scale, start-up financing model of 2007 has failed. As it turns out, Silicon Valley semiconductor companies underwent a similar transition decades ago with high volume, capital intensive manufacturing activities being replaced with technology development, applications engineering, marketing, support and licensing. The Valley flourished in this higher-order world. 2013 will be the year when cleantech entrepreneurs and investors combine creativity with value chain leverage in order to transition business models into the something resembling the bread and butter of Silicon Valley executives over the last few decades.
Cleantech VC has been all about chasing after the big markets hoping for the commensurate reward. Unfortunately the biggest markets such as solar are commodity-like and so if you are competing on dollars per watt or whatever the energy metric may be, the chance of competing against scale economies and underwriting the early stages of your company with even remotely profitable growth is pretty much zero. For 2013 we'll see a shift to where the majority of cleantech VC-funded deals will simultaneously address and be marketed based on their non-cleantech pain points. Start-ups will each be able to offer a real differentiation that captures value pricing in the market place. There will thankfully be less me-too's.
It's rare to hear of VCs critical of early stage funding programs like ARPA-E or SBIR. The consensus seems to be that they work pretty well, in contrast to ill-fated loan guarantee programs. But with the scarcity of expansion and project capital, important cleantech start-ups are still dying on the vine. Government will sharpen their pencils and similarly to ARPA-E, will bring on new talent from the private sector to manage a later stage program. "Build it and they will come" will be shunned and start-ups will need to have the value chain fully covered with partners, suppliers and customers. But if risk is properly managed, governments will figure out how they can fit in as the keystone in the management of risk. So my boldest (perhaps delusional) prediction of the year is that 2013 will be the year that Washington figures out what it can do to help with the cleantech valley of death.