3 Characteristics of the Next Generation of Cleantech Entrepreneurs

During the 2 week study mission around Silicon Valley, several different parties have independently come to the conclusion that Cleantech will provide the next biggest source of growth. Raj Alturu of DFJ gave a very convincing presentation on how cleantech will provide the greatest venture returns in the coming years. He's not alone. Mark Heesen, chairman of the NVCA (National Venture Capital Association) predicts that cleantech will become most invested sector by venture capitalist the next 5 years.

We’ve also managed to visit two successful companies in the Cleantech field – Tesla Motors and Nanosolar. Both companies are well-funded and have a strong management team with robust track records and proven operational/exceptional abilities. Microsoft is also going into the Cleantech area by focusing on energy efficient data centers as the next growth strategy. Companies such as GETIT, a consultancy company integrating green practices into IT, are also becoming more commonplace. Even the lawyers are on the bandwagon. Fred Greguras of K&L gates gave a very interesting account of the various types of cleantech projects to finance and displayed his interest in the angel investing of such projects in times to come.

All these come as little surprise to me. as I have already been working in this industry for the past 1 year. As an investment banking analyst at ReEx Capital Asia, one of the first few investment banks focusing in the Asian Clean Energy sector, I had the opportunity witness first-hand the growing interest in cleantech by both investors, entrepreneurs, consultants and lawyers, which is exactly what is happening now in Silicon Valley. What is different, however, is that this two weeks study mission exposed me other sectors that these players were involved in, namely the Information and Communication Technologies (ICT) and biotech. This exposure allowed me to crystallize my thoughts and to identify the challenges and opportunities that are unique to cleantech companies.

Firstly, cleantech is a resource play. There is no or little product differentiation – at the end of the day you’re going to have to come up with a solution that generates electricity in kWh that is cheaper and/or cleaner. In other words, all cleantech companies produces the same output and will be assessed by the same measuring system. It’s of little use if you can come up with a cleantech solution that sounds and looks sexy but doesn’t make economical sense to your consumers (unless you’re trying to selling to the pure environmentalists). Therefore, marketing still plays a part (see Tesla Motors and premium sports cars), but is less important as compared to ICT or biotech companies.

Second, cleantech companies will more likely result in incremental innovation rather than disruptive innovation. There are several reasons for this, but the most important factor is that in cleantech, as opposed to ICT and biotech, cleantech consumers already know what they want, and that is cheaper/cleaner electricity, water and/or air (see point 1). In contrast, consumers of ICT services often don’t know what they want until the trend actually takes place, allowing small start-ups to quickly become dominant players in the market (see Facebook, Twitter).

Another reason why cleantech companies will more likely result in incremental innovation is due to the higher barriers of entry for innovation in the cleantech space. Whereas a company such as Facebook/Twitter of any other ICT company can be started out by 4 computer engineers dropouts in an underground basement, the entrepreneurs of cleantech companies would require sound engineering and technical understanding in energy, research backgrounds and laboratories, and who has a track record of successfully deploying and operating current energy generation assets. Think PhDs with MBAs who have worked in big companies such as IDEA, IBM etc… and who has a track record of at least 10 years in the field.

Although I believe that most cleantech companies will result in incremental innovation, it is still possible for a cleantech company to result in a disruptive innovation that will revolutionize the world. This company will be spearheaded by the next-generation cleantech entrepreneur. The next generation of cleantech entrepreneur will require the creativity and vision to break through the old-fashioned thinking of incumbent energy generation technologies, and perhaps come up with radically new ways to harvest, store and distribute energy. Thus, he/she would need to have an engineering background together with contempt for the status quo and the ability to challenge long standing engineering principles and practices on a technical level.

Another requirement of the next generation cleantech entrepreneur is also the strong understanding of culture and social science. As compared to previous generations, energy generation and usage is increasing becoming less and less centralized and more and more localized/distributed. Entrepreneurs of cleantech would be required to understand how their technology/product will work in the local context and culture more so then in the past.

However, one thing that has not changed is that the next generation cleantech entrepreneur would also require a strong management team with strong execution/operational ability from day 1 – to test the engineering assumptions and to build and develop the product. Such a management team would also provide strong networks to potential suppliers and customers, which is of paramount importance. This brings us back to point number 1 – which is that cleantech, in the end, is still a resource play.

In conclusion, the next generation cleantech entrepreneurs that will create a radically disruptive cleantech start-up would have an engineering degree with strong creativity, a strong understanding of culture and social science, and has the ability to attract strong management team with years of execution and operational ability.