Credit: Pekka Nikonen
Last spring, Lisa Bergson received an unexpected call from an investor interested in her company, Tiger Optics. Bergson hadn't considered her company to be "cleantech," but Rob Day, a venture capitalist who specializes in clean technology, made a persuasive case: Tiger Optics' products—sensitive, laser-based devices that measure traces of moisture and gases in the air—could be used for industrial applications, including environmental monitoring. Plus, the company uses non-polluting manufacturing methods.
"I think that we epitomize, in many ways, 'cleantech,'" Bergson says now.
Cleantech is a venture capital buzzword, making eyes sparkle the way "biotech" and "infotech" once did. Over the last several years—for reasons financial, technological, environmental and political—cleantech is showing commercial potential. Startups are sprouting like weeds, bolstering investors' hopes for big, fast returns. Surely venture capitalists, as well as state and local governments angling to be the "Silicon Valley" of cleantech, noticed that last year's three largest technology IPOs were all solar energy companies.
Advertisement
"There will continue to be cycles within this, but around the trajectory of growth—strong growth," says Day, who is a principal investor at Expansion Capital Partners.
Solar energy is indisputably a clean technology, but the venture capital community defines cleantech a little more broadly as anything in energy, water, transportation and materials science. By this definition, a company that specializes in squeezing 90% of the oil out of a well could call itself cleantech.
"That could [encompass] everything," says Warren Weiss, a venture capitalist with Foundation Capital, another company hot for cleantech.
Other observers of the market are a little more discriminating. Joel Makower, co-founder of the research and publishing firm Clean Edge, defines cleantech as "a diverse range of products, services and processes that harness renewable materials and energy sources and substantially reduce the use of all resources and dramatically cut or eliminate emissions and waste."
While Makower's version is more in line with the intuitive definition of cleantech, it still encompasses a baffling array of technologies, including Tiger Optics' devices, solar cells, water filtration systems, software that manages a building's air conditioning, biofuels and ozone-water systems for disinfecting fruit.
"I worry about everything getting lumped into one category and people saying 'Here's the average outcome of these kinds of companies,'" says Weiss.
Taken as its heterogeneous whole, cleantech is scaling the venture capital pyramid. Investment in the sector jumped almost 35% to $1.6 billion between 2004 and 2005, making it the fifth largest sector, just ahead of semiconductors. Continued growth seems inevitable: Venture capitalists are attending cleantech conventions in droves, kicking the tires of new companies and asking questions in panel discussions.
"Almost everybody is poking around," says Steve Chadima of Energy Innovations, a solar company that received funding last year.
However, it's possible this flurry of newfound interest in earth-friendly cleantech isn't as noble as one may think. There's green and then there's green, and some in the field don't believe the venture capitalists are showing up because they had pangs of environmental conscience.
"I don't think the social and environmental aspects have anything to do with it," says Makower.
There are likely several reasons that cleantech is now seen as a potential moneymaker— the most commonly cited is the rising price of oil. As the price of a barrel dances around $70, efficiency-boosting technologies start to look attractive and renewables become more cost-effective. The prospects of cleantech may follow each hiccup in oil prices, each protest in Ecuador, each incident in Nigeria, each pipeline rupture in the Middle East.
"All these issues are colliding on a global basis and venture capitalists love to hear that stuff," says Weiss.