Growing Role of Strategic Partners in Financing Green Innovation – Cleantech Forum NY

New York City

A key takeaway from the Cleantech Forum NY is the changing dynamic and increasingly important role of strategic partners in the financing and development of cleantech innovation, both in collaboration with and contrast to venture capital.  While there are many dimensions and drivers for this, ROI is a key one.  Compared to the capital efficiency of Internet-based startups (programmers + computers + caffeine + all-nighters = scalable new business), cleantech is significantly more capital intensive virtually across the board, from development through deployment (can wind turbines ‘go viral’?).

VCs have their own set of pressures, from raising new funds to meeting the return on investment objectives and expectations of existing limited partners in current funds.  The latter are significantly impacted by the current financial climate, with the cleantech IPO market still down from its heights of a few years ago.  Slower exits and fewer liquidity events put pressure on VCs to move towards later stage opportunities (less risk, less time until exit), ‘capital-lite’ investments, and those with greater strategic partner involvement.

The dynamics of a strategic partner investment can be significant, not only from the benefits of proof of concept and scalability, but basic math.  A VC likely needs to expect a 10x or greater return over a 3 – 6 year time frame on each individual investment in order to meet the risk and reward criteria of their limited partners after taking into account expenses, potential dilution, and outright losses across their entire portfolio.  An operating company, on the other hand, that has the potential to utilize a specific innovation, could be a big winner if the technology, when deployed across its operating assets, reduces expenses (or improves output, efficiency, etc.) by a small, even fraction of a percent.  This percent, when multiplied over sites and years, can sometimes justify investments that a near term 10x return might not.

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