Green technology is a viable investment thesis, just not compatible with producing timely venture style returns.
Greener Pastures
I understand the need for a greener environment (and enjoyed the video presentation from Google CEO Eric Schmidt at Corporate EcoForum), creating more renewable energy and perhaps making us less dependent on foreign countries.
That promise sounds good, albeit I think it will just redefine what we as countries fight about. Today it is oil. Tomorrow it is probably about green technology and resources. Soon, green technology will also find its core competencies and attractive pricing in countries other than just ours. If we don’t learn how to resolve our differences and respect each other’s cultures, the subject of our debates is irrelevant. New leadership is vital.
Risk Profiling
But the part I don’t get is why many investors, like Kleiner Perkins, “flee” from information technology at the shimmer of rising oil prices, financial instability, and tax incentives and dive headfirst into an entirely new, and may I add an utterly different line of business. A range of activity that often has more similarities to farming (with all of its intrinsic risk factors) than effortlessly moving bits through thin air.
The reason why information technology remains an exciting investment category for me is:
- The innovation of information technology is cheap, a few smart people in a room behind a computer and voila, a new star is born.
- The distribution of technology is cheap and immediate, there are virtually no borders (except to China perhaps).
- The monetization of technology is well understood and is either direct or indirect but almost always single source.
- The enormous left-over possibilities of information technology that has yet to percolate many other industries.
Contrast that with green technology where I see:
- The massive costs associated with early foundational development.
- The costly implementation and distribution that requires safety, governmental, social approval processes (literally lasting years).
- In most cases the requirement of multi-source monetization, involving grants and many regulatory constructs (requiring a longer sales cycle).
- A limited time-to-market benefit for early adopters and therefore lack of urgency to buy. The adoption of green technology is generally believed to lengthen the time-to-market, aiming to produce a return on investment spread out over many years.
Again, I do see an enormous need for green technology to save our planet and a justification for investments supporting it. I am just not confident that the current Venture Capital model (born out of the technology era, and driven by information technologists) will lend itself to that segment. I am very curious to see what vintages will produce viable returns for the Limited Partners in the green-tech funds.
I Doubt I Am Wrong
I hope I am wrong, as carefully applied Venture Capital has the potential to change industries, countries and the people in them.
In the meantime I’ll stick to my core competency, creating and managing the growth of innovative information technology companies.
