Venture Capital Investment in

the Clean Energy Sector

Shikhar Ghosh
Ramana Nanda

Working Paper
11-020

Copyright 2010 by Shikhar Ghosh and Ramana Nanda

Working papers are in draft form. This working paper is distributed for purposes of comment and
discussion only. It may not be reproduced without permission of the copyright holder. Copies of working
papers are available from the author.

VentureCapitalInvestmentintheCleanEnergySector
ShikharGhoshandRamanaNanda
August1,2010

1. Introduction
Venturecapitalhasbeenakeysourceoffinanceforcommercializingradicalinnovationsinthe
UnitedStates,particularlyoverthelastthreedecades.Theemergenceofnewindustriessuch
assemiconductors,biotechnologyandtheinternet,aswellastheintroductionofseveral
innovationsacrossaspectrumofsectorsinhealthcare,ITandnewmaterialshavebeendriven
inlargepartbytheavailabilityofventurecapitalfornewstartups.Unlikeotherformsof
externalfinance,akeyaspectofventurecapitalisthatitfacilitatestheprovisionoffundingto
startupfirmsdespitethehugerisksassociatedwithunproventechnologies(Gompersand
Lerner1999).Sincestartupswithnewtechnologiesrarelyhaveinternalcashflowtodraw
uponandaretooriskytogetdebtfinance,theydependcriticallyontheprovisionofventure
capitalfortheirsurvival.
Inthischapter,weexaminetheextenttowhichventurecapitalisadequatelypositionedforthe
rapidcommercializationofcleanenergytechnologiesintheUnitedStates.Theneedfora
revolutionincleanenergyisdrivennotjustbyenvironmentalconsequencesofenergyuse,but
alsobytheneedforenergysecurity,toaddressgrowingconcernsaboutacrisisinthebalance
ofpayments,andasapotentiallyimportantsourceofdomesticjobs.Ourpremiseinthis
chapteristhatakeyaspectofsuchwidespreadchangeisthattheseissuescannotbesolved
byasingletechnology.Rather,technologicalchangeswillhavetobepervasiveandwillrequire
awholerangeofdifferentproductsandprocessestocometomarket.Someofthe
technologicalprogresswillcomefromincrementalinnovationsthatdonotdependonventure
capital.Forexample,thelargescaledeploymentofmorematuretechnologiessuchaswind
farmsorutilityscalesolarisfundedthroughprojectfinance.Moreover,firmsmanufacturing
thewindturbinesandsolarmodulesareabletofundtheirgrowththroughdebtorthestock
market.Othersolutionssuchasretrofittinghomesandofficespaceswithmoreenergyefficient
materialscanbefundedthroughbankfinance.
However,arangeofnewstartupsintheenergyproduction,transportation,energystorageand
energyefficiencysubsectorsdependcriticallyonventurecapitalfortheircommercialization
1

becausetheirtechnologiesandbusinessmodelsarenotyetproven.ItistheVCfundingof
theseprojectsandthepotentialchallengestherein,thatisthefocusofthischapter.1
Wedocumentarangeoffactorsaboutthesecleantechnologystartupsthatmakethemmuch
morechallengingfromaninvestmentstandpointthanthetypicalinvestmentmadebyVCfirms.
ThesechallengeshavebeguntoimpactthefocusofVCinvestmentsincleanenergyandare
likelytocontinuedoingsointhenearfuture.Inparticular,VCinvestmentshavebeguntomove
awayfromradicaltechnologiesrelatedtoenergyproductionandareincreasinglyfocusedon
energyefficiency,software,energystorageandtransportation.Startupsintheselattersectors
tendtobeclosertothetraditionalinvestmentsVCsmake,intermsoftheircapitalintensity,
exitrequirementsandbusinessmodels.Evenforinvestmentsinenergyproduction,VCshave
begunshiftingthebusinessmodelsoftheirportfoliocompaniestowardscomponent
manufacturingthatismuchclosertotheirtraditionalfocusandexpertisethantheskills
requiredtobuildenergyproductioncompanies.Inthelongterm,sustainedventure
investmentinstartupsfocusedonenergyproductionwilldependontheabilityofventure
capitaliststofindworkablesolutionstotheinvestmenthurdlestheyface.Wehighlight,based
onhistoricalevidence,thatovercomingsuchhurdlescantakeasignificantamountoftimeand
isnotguaranteedtosucceed.
AkeyattributeoftheventurebackedinnovationintheUShasbeentheabilityoftheprivate
capitalmarketstofinanceawidevarietyofapproachesinaspecificarea,asopposedto
choosingwinnersearly.Sinceventurecapitalistheprimarysourceofriskcapitalavailableto
cleanenergystartupsintheUS,thechangingfocusofVCinvestmentincleanenergycanhave
importantconsequencesforthenatureofUSinnovationinthisspace(KortumandLerner
2000).Inthelongterm,itcouldimplythatthelocusofinnovationinenergyproductionmay
moveawayfromtheUStoEuropeortoChina,drivenbythemoreaggressivegovernment
policiesinthoseregionsaimedatpromotingprivateinvestmentincleanenergyproduction.We
thereforealsohighlightUSgovernmentpoliciesthatmayhelptomitigatethechallengesfaced
byVCs,aswellasacceleratetheinstitutionalizationofventureinvestmentinthecleanenergy
space.
Ouranalysisisbasedonbothaquantitativestudyofrecentventurecapitaldeals,aswell
discussionswithseveralleadingventurecapitalinvestors.Insomecases,VCswespoketohad

Thisdoesnotinanywayimplythattheothersourcesofinnovationareunimportantorthattheotherformsof
financeforthesesectorsdonotfacetheirsetofchallenges.Theyaresimplyoutsidethescopeofthischapter.
Likewise,wedonottakeapositionontherelativeimportanceofincrementalvs.radicalinnovationsfortheUSto
focuson.Wetakeasgiventhatbotharenecessary,andgiventhis,examinethehurdlesfacingtheventurecapital
communityincommercializingradicalinnovationsincleantechnology.

madeinitialinvestmentsinthesector,butsubsequentlydecidedtocurtailtheirinvestments
becauseofactualorperceiveddifficultiesinmakingadequatereturns.Wealsospokewith
activeVCinvestorswhohadchosennottoinvestin(certaintypesof)cleanenergystartups.As
such,ouranalysisisalsoforwardlookingintermsoftheexpectationsthattheseindividuals
haveaboutVCinvestmentinthissectorgoingforward.
Toputthechallengeswenoteincontext,wefirstoutlinetheprocessesthatVCfirmshave
developedtomakethemuniquelyqualifiedtofosterinnovationinanuncertainenvironment.
InSections3and4weshowhowtheseprocessesarepoorlysuitedtofundingcertaintypesof
cleanenergystartups.Section5outlinessomepossiblesolutionstothechallenges,including
theroleofgovernmentpolicy.Section6hasconclusions.

2. DistinguishingFeaturesofVentureCapitalInvestments
2.1PortfolioStrategy
Akeydifferencebetweenventurecapital(VC)andothersourcesoffinanceisthatVCfirmstend
tofocusoninvestmentsthatfacesubstantialtechnologyrisk.Moreover,thetechnologyriskis
notresolveduntiltheVCshavemadesignificantinvestmentsinthestartup,whichmeansthat
VCsmayhaveinvestedsizeablesumsofmoneybeforeitendsupbeingafailure.Together,
thesefeaturesleadtoahighlyskeweddistributionofreturnsinventurecapitalistsportfolios.
Figure1documentsanexampleoftheseskewedreturnsforaleadingVCfirm.Ascanbeseen
fromFigure1,8%ofthedollarsinvestedbythisVCfirmaccountedforover70%oftheoverall
returnsoftheportfolio.Ontheotherhand,60%ofthedollarsinvestedwerespentonprojects
thatwereultimatelyterminatedbelowthecostoftheinvestment,andhencecontributedto
under4%ofthereturnsoftheportfolio.2Itisimportanttonotethatatthetimeoftheinitial
investment,ofcourse,alltheirinvestmentshadthepotentialtorealizeexceptionalreturns.
Indeed,giventhehighchanceoffailure,VCswillnotinvestinprojectsthatdonothavethe
potentialtobewinners.Theyjustdonotknowwhichoftheirinvestmentswillendupas
winnersandwhichoneswillendupbeingfailures.Putdifferently,thereturndistributionfor
VCslookslikethatinFigure1inexpectation,eventhougheachindividualinvestmentismade
withthebeliefthatitcouldbeawinner.

Dataonventurecapitalinvestmentstendstobeprivatesothatalargescaleanalysisisdifficulttodocument.
Moreoverfundswithinvestmentsprimarilyinsoftwarehavesomewhatdifferentreturnprofilesthanthosein
morecapitalintensivesectorssuchasbiotechnology.However,discussionswithinvestorsrevealthatskewed
distributionshighlightedinFigure1areacommonfeatureinventureportfolios,evenforthebestventurefunds.

Figure1:BreakdownofaTier1VCsPortfolio

70.0%
63.2%
60.0%

50.0%

% of Total Value Created

61.7%

40.0%

30.0%
20.5%
20.0%
13.6%

11.6%

9.2%

8.7%

10.0%

3.8%

3.3%

4.3%

0.0%

<1X

1X to 3X

3X to 6X
Multiple on Invested Capital
% of Cost

6X to 10X

>10X

% of Value

Source:AnalysisbyProfessorWilliamSahlman,basedon468Investmentsforthefundfrom19902006

Animportantfacetoftheventurecapitalistsinvestmentprocessthereforeinvolvesalarge
enoughnumberofinvestmentsintheportfoliosothatthechanceofapositivetailoutcome
intheportfolioincreases.Itthereforefollowsthatanyindividualinvestmentcannotbetoo
capitalintensiverelativetothesizeofthefund.Infact,mostfundshaveformalrestrictions
thatconstraintheamountofcapitalthattheVCfirmcaninvestinasingleproject.Figure2
showswhattheplannedinvestmentslooklikeforatypical$300Mventurefund.Ithighlights
thefactthatsinceVCsplantoonlymakemoneyfromhalfoftheirinvestments,theyneedafew
oftheirinvestmentstodoverywellaswellasownareasonableshareofthosefirmsatexit,in
orderfortheVCtogeneratestrongdollarreturns.

Figure2:ExampleofProFormashownbyVCstotheirinvestors

CategoryofOutcome

Projected
ValueatExit

Dollarinvested Shareowned Expected#

percompany
atExit
investments

Total$
invested

Total$
Return

EarlyFailure

$5M

n/a

$25M

Completewriteoff

$815M

n/a

$55M

Moneyback

$50M

$815M

20%

$55M

$50M

Successfulexit(low)

$200M

$815M

20%

$55M

$200M

Successfulexit(medium)

$350M

$815M

20%

$55M

$350M

Successfulexit(high)

$500M

$815M

20%

$55M

$500M

Total

$300M

$1,100M

Source:AuthorsanalysisbasedondiscussionswithVCs

VCsareoftenmostcomfortableinvestinginlesscapitalintensivesectors,and/orfocusearlyin
thestageofthefirmslifecyclewherethecapitalneedsaresmaller,inordertohavealower
overallinvestmentinthefirm,whilestillretainingalargeshareofequity.Thisisoutlinedin
Figure3below.Figure3showsthatVCsfocusontheprecommercialstagesofthefirmslife
cycle,anduptillthepointwherecommercialviabilityhasbeenestablished.Atthispoint,they
oftenexittheirinvestment,eitherthroughasaletoestablishedcompaniesinthesector,or
throughthepublicequitymarkets.3

SinceindividualVCfirmshavelimitsonhowmuchtheycaninvestinagivenportfoliocompany,theyneedto
havesomeassurancethattheprojectcanbehandedovertoanotherinvestorifthethesefinancinglimitshave
beenreachedbutthestartuphasnotyetachievedanIPOorsale(NandaandRhodesKropf2010).Thus,even
withintheprecommercialstageofthefirmslifecycle,VCfirmsspecializeinsomewhatdifferentsubstages,with
someinvestorsfocusingonseedandearlystageinvestments,whileothercominginathighervaluationsafterthe
initialriskhasbeenminimizedbutpriortoestablishingcommercialviability.

Figure3:StageofVCInvestments

Basic &
Applied
Research

Idea Vetting &

Pre- Commercial
Testing

Establishing
Commercial
Viability

Large-Scale
Deployment

Universities,
Government
Venture Capital

Project / Asset Finance

Acquisitions by Established Companies
Private Equity & Public Equity Markets

2.2Governance
Theskillsrequiredtorunearlystagecompaniesareverydifferentfromthoserequiredto
managelargecorporations.Asecondimportantaspectofventurecapitalisthereforethesetof
skillsandcontactsVCinvestorsbringtobearontheirinvestments.Byensuringthatthestartup
ismakingprogressasexpectedandhelpingtoremoveroadblocks,VCsreducetheoperational
riskofthestartupandincreaseitschancesofsuccess.ThegovernanceprovidedbyVC
investorsisthusakeyattributeofventurecapitalcomparedtoothersourcesoffinanceandis
alsobelievedtobeasourceofcompetitiveadvantageacrossventurecapitalinvestors(Hsu
2004;KaplanandSchoar2005;Sorensen2007).
AlthoughVCsplayanimportantroleingovernancethroughtheirpositionsontheboardof
portfoliocompanies,thedaytodaymanagementinthefirmstillrequiresanableCEO.This
impliesthatakeyelementinthesuccessofaVCinvestmentisthequalityandtrackrecordof
theentrepreneurswhowillrunthecompany.VCsthuslookforentrepreneurswithboth
industryexperienceandpriorhistoryofworkinginstartups,sothattheycansuccessfully
manageandgrowthecompanytoapointwhereitexits.Infact,akeyassetofsuccessfulVCsis
theirstablenetworkofmanagementtalentthatcanbebroughtintosupportanopportunity
thatisoutsidethescopeofthecurrentmanagement(HellmanandPuri,2002).

2.3Contracts
Despitethefocusonselectinggoodteamsandgovernance,manyVCinvestmentsfaildueto
thehightechnologyrisk.VCsthereforestructuretheirinvestmentsusingcontractssuchas
convertiblepreferredstockthatgivesthemsomemeasureofdownsideprotectioninthe
eventthattheinvestmentfails,whilestillgivingthemachancetoshareintheupsideifthefirm
succeeds(GompersandLerner1999;KaplanandStromberg2003).VCsalsostagetheir
investments,givingthefirmenoughcapitaltoreachitsnextmilestone,butmakethenext
roundoffundingcontingentontheprogressmadebythefirmupuntilthatpoint(Gompers
1995).Sincealargenumberoftheirinvestmentswillfailafterdemonstratingearlypotential,
VCsonlymakefollowoninvestmentsforfirmsthatcontinuetolookpromisingateachstage,
therebyfocusingtheircapitalandtimeonthepotentialsuccesses,asopposedtodividingit
equallyacrossallfirms.
VCfundsarestructuredtohavealifeof10years.Sincethemanagingpartnerscompensation
isbasedonamanagementfee(typically2%ofthecommittedcapital)andabonusforastrong
returnaboveahurdlerateofreturn(knownascarriedinterest,andtypically20%oftheexcess
return),VCsliketoexittheirinvestmentwellwithinthe10yearperiod.Thisallowsthemto
establishacleartrackrecordwiththeirowninvestorsandhenceraiseafollowonfundbythe
timeinvestmentsinthepriorfundarebeingharvested.VCsthereforehaveabiastowards
investinginprojectswherethecommercialviabilityisestablishedwithinathreetofiveyear
period,sothattheycanexitthroughanacquisitionorthroughanIPOwithinthelifeofafund
(GompersandLerner1999).
LookingatFigure4,itcanbeseenthatthesweetspotforventurecapitalinvestmentis
thereforeinthelowerrighthandboxthatistypifiedbyhightechnologyrisk,butlowcapital
intensity(KerrandNanda2010).VCshavehonedtheartofinvestingintechnologicallyrisky
projects,butthefactthattheyneedtomakemanyinvestmentstorealizeafewsuccesses
impliestheytypicallyinvestunder$1015Minequityperstartup.SectorssuchasITand
software,thathaverelativelylowlevelsofcapitalinvestment,areidealsectorsforVCs,wherea
syndicateoftwotothreeinvestorscancompletelyfundastartupthroughtoIPO.Inadditionto
theirlowercapitalrequirements,thesesectorshaveshortersalescyclesthatgenerate
commercialviabilityquickly,henceenablingVCstoquicklygrowtheirportfoliocompanies
throughthefirstthreestagesoutlinedinFigure3,andexittheirinvestmentsinashorterperiod
oftime.Infact,thehighreturnsforseveralofthemostsuccessfulVCfirmsarebasedtheir
InternetandITinvestments.AclassicexampleisthatofGoogle,thathadanIPO5yearsafterit
receiveditsfirstroundofVCfundingandhavingraisedabout$40Minventurecapital.

Figure4:FocusofVCinvestments

capitalintensityofproject

high

Project Finance /
Existing Firms

Bank Debt /
Existing Firms

low

Hard to Fund
(Valley of Death)

Venture Capital

TechnologyRisk

high

3. VentureCapitalInvestmentsinCleanEnergy
Venturecapitalfundingofcleanenergystartupshasgrowndramaticallyinabsolutetermsover
thelastdecade.4In2002,only43cleanenergystartupsreceivedVCfundingintheUS,raisinga
combinedtotalof$230M.In2008,over200startupsraised$4.1BNinventurecapitalinthe
US.5Infact,cleanenergyinvestmentsaccountedforabout15%ofthetotaldollarsinvestedby
VCsintheUSin2008.
Despitethisgrowinginterestinthesector,thenumberofventurecapitalfirmswithastrong
focusoncleanenergyremainssmall.Lessthan30USVCshaveasubstantialportionoftheir
portfoliotargetedtowardscleanenergyinvestments.Thisimpliesthataconcentratedsetof
investorsmakethemajorityoftheinvestments.Forexample,in2008and2009,thetop5VC

Giventhatventurecapitalisfocusedonearlystageandlesscapitalintensiveinvestments,itnecessarily
constitutesasmallfractionofthetotalprivatecapitalinvestedinanysector.Thisisequallytrueofcleanenergy,
wherelessthan5%ofthe$500BNinnewinvestmentfrom20072009wasVentureCapitalandPrivateEquity
investment.(CalculationsbasedondatafromNewEnergyFinance.)
5
Source:ErnstandYoung,NationalVentureCapitalAssociationPressReleases.

investorsincleanenergyaccountedforabout25%ofallthecleanenergydealsdonebyVCsin
theUS.6

Figure5:SubSectorswithinCleanEnergy

capitalintensityofproject

high

Wind farms
Utility-scale solar
First-gen biofuel refineries
Fabs for solar cells using
established technologies

First commercial plants for

unproven solar cell technologies
Advanced Biofuel refineries
Offshore wind farms
Carbon sequestration

Wind and solar components

of proven technologies
Internal combustion engines
Insulation / Building material
Energy efficiency services

Energy Efficiency software

Lighting
Electric drive trains
Fuel cells / Power Storage
Wind and solar components of
unproven technologies

low

TechnologyRisk

high

Figure5describesthecleanenergyinvestmentlandscape,mappedontotheframework
outlinedinFigure4.Thetoplefthandboxoutlinesthemanufactureanddeploymentofmore
matureenergyproductiontechnologies.Thetechnologyriskfortheseisminimalafterthe
equipmenthasbeencommerciallyprovenatscale,butyetisextremelyexpensivetofinance.
Sinceraisinghundredsofmillionsofdollarsofequityfinanceisextremelydilutivetoprivate
manufacturersanddevelopers,theywouldprefertoraisedebtfinancefortheselargecapital
investments.Indeed,debtinvestorsarewillingtoinvestlargesumsofmoneyonce
technologieshavebeentriedandtestedoveraperiodofafewyears.Forexample,over50%of
the$500BNinnewinvestmentincleantechnologiesgloballybetween2007and2009was
fromprojectfinanceofmaturetechnologiessuchaswindturbines,solarpanels,andfirst
generationbiofuelrefineries,despitethechallengesfacedbytheglobalcapitalmarketsduring
therecession.7Similarly,debtandequitymarketswillfinancethecapitalinvestmentsneeded

6
7

AuthorscalculationsbasedondatafromNewEnergyFinancereportsandtheVentureXpertdatabase.
AuthorscalculationsbasedondatafromNewEnergyFinance.

tosupportthegrowthoffirmssuchasSunTechorFirstSolarthatproducethesecommercially
proventechnologies.
Thebottomlefthandboxdescribeslesscapitalintensive,lessriskybusinesses,orthe
manufactureofcomponentsforexistingtechnologiesthatareusedforenergyproduction.
Severaloftheserelatetoincrementalinnovationsbeingundertakenwithinexistingcompanies
thathaveachievedandcontinuetoachievelowercostsfortheirproducts.Forexample,
GeneralElectric,whichisaleaderinthewindturbinemarket,iscontinuouslyworkingon
incrementalinnovationstoreducethecostandincreasetheefficiencyofitsproducts.In
addition,severalbusinessesrelatingtoenergyservicesorenergyefficientbuildingmaterialsare
emerging,drivenbylegislationtopromotehomeandcommercialretrofits.Thesebusinesses
donotfacetechnologyrisk,andcaneasilyraisebankdebttofundtheiroperations.8
Ontheotherhand,thetechnologiesinthetworighthandboxestypicallyaretoo
technologicallyriskytoattractdebtfinance.Thebureaucraticstructureoflargecorporations
oftenimpliesthatsuchinnovationisdonebystartupsasopposedtolargerfirms(Henderson
andClark1990.)Theonlywaytheycanthusbecommercializedisthroughinitialinvestment
fromventurecapital,astheydonothaveinternalcashflowtofundtheirinnovationandare
tooriskyforprojectordebtfinance.
Afteraninitialforayintobackingtechnologiesinboththetopandbottomrighthandboxes,
VCsareincreasinglychangingtheirfocustowardsonlybackingstartupsinthelowerrighthand
box.Thatis,theyarefocusingonsectorsthatliemoreintheirtraditionalsweetspotasshown
inFigure4.Forexample,theshareofenergyefficiencydealsdonebyVCsrosefrom24%in
2008to32%in2009whileenergyproductioninvestmentsfellfrom30%to18%,and
investmentsinalternativefuelsfellfrom13%to8%.9Evenamongtheprojectsthatarerelated
toenergyproduction,VCshavebegunchangingtheirfocustowardscomponentmanufacturers
ratherthanfullscaleenergyproducers.DiscussionswithVCssuggestthatthistrendislikelyto
continueandthatseveralfactorsarecontributingtothisshiftinfocus.Weoutlinethesein
greaterdetailinthesectionbelow.

Eveniftheydidseekventurecapital,theyareunlikelytohavethegrowthpotentialthatcanofferVCstail
outcomes.
9
Source:ErnstandYoungpressreleases.

10

4. CleanEnergyInvestmentChallengesfacingVCs
4.1 CapitalintensityofenergyproductionandtheValleyofDeath
Akeyaspectoftheenergyproductiontechnologiesinthetoprighthandboxisthattheyface
technologyrisksattwostagesoftheircommercialization.Thefirst,whichistheriskofthe
technologyworking,issharedwithotherstartups.However,thesetechnologiesfaceasecond
risk:evenifthetechnologyworksinthelab,itisnotclearifitwillworkatscale.
Thisimpliesthatthetechnologyriskforenergyproductioncompaniesremainsformuchlonger
thaninmostfirmsthatVCsinvestin.Italsoimpliesthatriskcapitalisnotjustnecessaryforthe
earlystagesofthefirmslife,butisalsoneededtodemonstratethatthetechnologyworksat
scale.Demonstrationandfirstcommercialplantsforenergyproductionareverycapital
intensive:thefundsrequiredtoprovecommercialviabilityforenergyproductiontechnologies
outlinedinthetoprighthandboxofFigure4canreachseveralhundredmilliondollarsovera5
10yearperiod,comparedtothetensofmillionsthatVCsaretypicallyusedtoinvestinginany
givenstartup.Forexample,Solyndra,acompanythatmanufacturersphotovoltaicsystems
usingthinfilmtechnology,hashadtoraise$970Minequityfinanceinadditiontoa$535M
loanguaranteefromtheDepartmentofEnergy,priortoitsplannedIPOinmid2010.This
amountofcapitaltoprovecommercialviabilityisanorderofmagnitudegreaterthanthe$40
$50MthatVCsaretypicallyusedtoinvestingineachcompanytogetthemtoasuccessfulexit.
AsoutlinedinFigure2,thislevelofinvestmentisjustnotfeasiblefroma$300Mfundwithout
severelycompromisingthefunddynamicsofaventurefirm.Forexample,investingonly$8
15Minprojectthatistwiceascapitalintensivehalvesthedollarreturn,whilemaintainingthe
sameshareatexitinordertogetthedollarreturnsrequiresmakingfarfewerinvestmentsand
hencemakestheportfoliomuchmorerisky.Suchinvestmentsarethustypicallytoocapital
intensiveforVCs,givenfundstructurespresenttoday.Ontheotherhand,thesestartupsare
stilltooriskyfordebtandprojectfinanceinvestorstofundtheirdemonstrationorfirst
commercialplants.Debtinvestorsareabletodeploylargesumsofcapital,butrequire
commercialviabilitytohavebeenestablishedwellbeforetheymaketheirinvestments.
Thus,whilemanystartupsfacetheriskthattheymaynotreceiveenoughearlystagecapitalto
getthempasttheprecommercialstage,energyproductionstartups,inparticular,facea
massivefundinggaparoundthedemonstrationandfirstcommercialstagesoftheproject.The
fundinggapthatarisesatthecommercializationstagehasbeenreferredtoasthevalleyof
deathasshowninFigure6below.WhileafewstartupssuchasFirstSolar(thathadprivate
fundingfromdeeppockedinvestors,includingtheWaltonfamily)andSolyndrahavebeenable
11

toraisethiscapital,severalfirmsthatwerebackedbyVCsinthissectorhavenotbeenableto
raisesufficientfollowonfunding,evenwhentheirtechnologyhaslookedpromising.10
AnotherwayofdepictingthevalleyofdeathisthroughtheframeworkinFigures3and4.It
highlightsthefactthatstartupsintheupperrighthandcornerthathavethetwostage
investmentriskandhencearetooriskyforprojectfinanceandtoocapitalintensiveforventure
capitalarepreciselytheonesthatriskfallingintothevalleyofdeath.

Figure6:FundingGapsandValleyofDeath

Idea Vetting &

Pre- Commercial
Testing

Inability to bridge Valley of

Death leads venture capital to
dry up even in the precommercial stage

Establishing
Commercial
Viability

Valley of
Death

Large-Scale
Deployment

Project / Asset Finance

Established Companies
Public Equity Markets

4.2 ManagerialValleyofDeath
Whilemuchofthefocusofinvestorsandpolicymakershasbeenonthechallengesoffinancing
thescaleup,itisimportanttonote,however,thatitisnotjustacapitalgapthatisfacedby
energyproductionstartups.Potentialentrepreneurswhoknowtheenergyspaceoftentendto
befromlargeoilcompaniesorfromutilities.Theirexpertiseisinrunninglarge,established
firmsthatdonotfacemuchcompetitivepressureandhavelargecashflowsattheirdisposal.
Hence,theymakegoodCEOsforthestagewhenthestartupismoreestablished,buttheytend
toberelativelypoorentrepreneursattheearlystageofthebusinesswherecashislimitedand
needstoberaisedfrequently,thebusinessmodelisnotclear,anddecisionsneedtobemade
quicklywithlimitedinformationathand.Ontheotherhand,thosewithabackgroundofVC

10

IndeedthefactthatSolyndraneededtowithdrawitsIPOissupportiveofthefactthatevenforafirmthathas
successfullyraisedmillionsofdollarsinVCfunds,anexitisnotguaranteed.Thiswillonlyservetofurther
exacerbatethechallengesfacedbysimilarstartupsinraisingventurecapital.

12

backedentrepreneurshipmaybesuccessfulatrunningsmallITrelated,biotechorsemi
conductorstartups,butareillpositionedtomanageandgrowenergyproductioncompanies
thathavedifferentbusinessmodelsandchallenges.SinceVCsrequireentrepreneurstoplaya
centralroleinfundraisingforthelargeamountsofmoneyrequiredforcommercialtestingof
thetechnology,inadditiontomanaginglargeproductionfacilities,internationalcommodity
pricingandanticipatingthechanginggovernmentpolicies,theskillsetrequiredofsuchCEOsis
onethatisinshortsupply.
Hence,VCshavebeguntoidentifyamanagerialvalleyofdeathaswell.Therearemanagers
withexpertiseindeploymentandentrepreneurswithexpertiseintheinitialideavettingstage,
butgiventhelongertimetakenforenergyproductionstartupstoexit,theentrepreneurswho
cansuccessfullybridgethevalleyofdeathinthecapitalmarketsarefewandfarbetween.This
mismatchbetweentherequirementsofanentrepreneurintheenergyproductionspaceand
theskillsetofthetypicalVCbackedentrepreneurisexacerbatedbythefactthatcurrentVCs
arealsoillpositionedtoactasmentorsandhelpwiththegovernanceofenergyproduction
startups.SincemostofthecurrentsuccessfulVCinvestorshavethemselvesmadetheirmark
investingintheITsector,theirknowledgeabouttheneedsaroundbuildingasuccessful
companies,theircontactstohelpstartupswithsuppliers,customersandpotentialacquisition
targetsarenotgearedtowardstheenergyproductionsector.Allthesefactorsgreatlyincrease
theoperationalriskofcompanies,andhencethiscreatesimportantchallengesforrunningand
growingstandaloneenergyproductioncompaniesthatgowellbeyondtheircapitalintensity.
4.3 NoestablishedExitMechanism
Inindustriessuchasbiotechnology,semiconductorsandIT/networksthatalsosharethe
attributesofhugeinfrastructureandmanagementrequirementsthatareoutsidethescopeofa
startup,VCsbankonanestablishedexitmechanismtohandovertheirearlystageinvestments
beforetheyhitthevalleysofdeathincapitalandmanagerialtalent.Forexample,inthe
biotechnologyindustry,theVCmodelhasevolvedsothatpharmaceuticalcompaniesstepinto
buypromisingstartupsatapointevenbeforecommercialviabilityhasbeenproven.Thisisa
keypartoftheinnovationecosystemasitbridgesthepotentialvalleyofdeathandthereby
facilitatesprecommercialVCinvestmentsinbiotechnology.Thepropensityofpharmaceutical
companiestobuypromisingstartupsalsofacilitatestheirIPOsatprecommercialstages,
becausepublicinvestorsbelievethereissufficientcompetitionamongpharmaceuticalfirmsfor
biotechnologystartupswithinnovativesolutionsthattheywillbeacquiredwellbeforetheyhit
thevalleyofdeath.Cisco,Lucent,HPandJunipernetworksplayanequivalentroleintheIT/
networkingindustry.

13

Thusfar,however,energyproducingfirmsandutilitiesthatsupplyelectricitytocustomershave
beenfarfromactiveinacquiringpromisingcleanenergystartups.Thisbottleneckinthe
scalingupprocesshasaknockoneffectontheabilityforVCstofundprecommercial
technologiesinthisspaceaswell.Ifearlystageventureinvestorsfacetheriskthattheymaybe
unabletoraisefollowonfundingortoachieveanexit,evenforstartupswithotherwisegood
(butasyetunproven)technologies,theyrunthedangerofsinkingincreasingamountsof
dollarsforlongerperiodsoftimetokeepthestartupalive.Withincumbentfirmsunwillingto
buythesestartupsatprecommercialstages,thetimetoexitforthetypicalstartupismuch
longerthanthethreetofiveyearhorizonthatVCstypicallytarget(thetimetobuildpower
plantsandfactoriesisinherentlylongerthanasoftwaresalescycleandcaneventakelonger
thanthelifeofaVCfund).AsshowninFigure6,thisleadsventurecapitaliststowithdrawfrom
sectorswheretheycouldhavehelpedwiththeprecommercialfunding,butwheretheyarenot
certainthattheywillbeabletoeitherfundtheprojectthroughthefirstcommercialplant,or
theyarenotsureiftheycanexittheirinvestmentatthatstage(NandaandRhodesKropf2010).
Inthecaseofbiotechnologyindustry,aclearexitmechanismwasfacilitatedbythefactthat
pharmaceuticalcompanieshadthecapabilitiesforchemistryratherthanthenewbiology
basedinnovationbeingundertakenbybiotechnologystartups.Theirowninnovationpipelines
hadbeguntodryup,andhencebiotechnologystartupsprovidedanaturalcomplementtotheir
ownexpertise.Despitethispullfactor,pharmaceuticalfirmsdidnotbegintoactivelyacquire
biotechnologystartupsuntilthelatterbegantoactivelycompetewiththepharmaceutical
industry.FirmssuchasBiogen,AmgenandGenentechcreatedasenseofurgencyamongthe
pharmaceuticalindustry,thatalsocreatedapushtostartacquiringsuchfirms.
Becausethesetofbuyersisuniformandthecriteriaforasuccessfulexitatthisstagehavebeen
developedandwellunderstood,VCscanworkbackwardsandsettheirowninvestment
milestones.Inthisway,thedownstreamexitprocesshasimportantconsequencesforthe
directionofupstreaminnovation.Thefactthatthereisawelldevelopedecosystemwhere
largepharmaceuticalfirmsbuypromisingstartupsimpliesthattheregreaterearlystage
venturecapitalfundingofsuchfirms.Moreover,stockmarketinvestorsalsohaveanappetite
forsuchfirms,intheknowledgethatpharmaceuticalfirmswillbewillingtoacquireapromising
targetbeforeithitsthebottleneckofmarketinganddistribution.Thisinturncreatesanother
exitavenueforventureinvestors,fuellingfurtherearlystageactivity.Infact,thehistoryof
capitalintensiveindustriessuchasbiotechnology,communicationsnetworkingand
semiconductorssuggeststhatuntiltheincumbentsstartbuyingstartups,theinnovation
pipelinedoesnottrulytakeoff.

14

Theextenttowhichlargeenergycompanieswillplayanequivalentroleintheinnovation
pipelineforcleanenergyisnotyetclear.Oilcompanieshavenotchosentobeactivebuyersof
cleantechnologystartups.Thequipwespillmoreoilinadaythanyoumanufactureusing
renewablefeedstockinayeartypifiestheattitudethatentrepreneursandVCsbelievethatoil
companieshave.Whilemanysuchincumbentshavechosentoinvestinrenewable
technologies,theseeffortshavelargelybeenseenaseffectivemarketingratherthan
substantiveeffortsatalterativeenergyproductionthatwouldcannibalizetheircorebusiness.
Similarly,thecurrentincentivesystemforutilitieswheretheyarepaidonelectricitysalesgives
themnoincentivetosaveenergyortoadoptenergyefficienttechnologies.Evenwhentheyare
mandatedtodosothroughquotassuchastheRenewablePortfolioStandardsorthrough
decoupling,theincentivestheyfacewillpushthemtowardsusingthesafest,lowestcost
technologiesasopposedtobuyingriskierstartupfirms.Althoughtherearearangeofsolarand
windenergystartupsthathavethemselvesreachedtheincumbencystage,theyareyetto
becomeactivebuyersofotherstartupsintheirrespectivesubsectors.
Thelackofexitopportunitiesisnotjustanissueforenergyproductionstartups.Othersub
sectorsincleanenergyareequallyvulnerabletothelackofasustainedexitmechanism.Many
oftheenergyefficiencytechnologiesrelatedtosmartmetersdependonacquisitionby,or
cooperationof,incumbentsfortheirsuccess.Othersdependonsystemlevelchangefor
widespreadadoption.Forexample,smartgridsoftwaretechnologiesaremosteffectiveonce
theantiquatedelectricitygridhasbeenupgraded.Widespreadadoptionofelectricvehicleswill
requirecomplementaryinfrastructuresuchaschargingstations.Innovationintheenergy
storagesubsectoralsodependsontheabilityofincumbentstobecomeactivebuyersofnew
startups.Whilenotasextensiveastheproblemsfacedbyenergyproductionstartups,these
challengesmayalsohinderthelongertermsuccessofventureinvestmentinthecleanenergy
investmentsinthebottomrighthandboxofFigure4aswellasthetoprighthandbox
associatedwiththeenergyproductiontechnologies.
4.4 GlobalCommoditiesandPolicyRisk
Itisworthnotingthatthebiotechnologyindustrytookover1015yearstoreachapointof
institutionalizationwherepharmaceuticalfirmsandVCbackedstartupseachplaytheirrolein
theinnovationecosystem.Thecleanenergyindustrytodayiswherebiotechnologywasin
1982andthecommunications/networkingindustrywasin1988.
AnimportantdifferencebetweentheenergyproductionandthetypicalVCbackedstartupis
thatenergyisacommodity.Whileincumbentsinotherindustriescompetewitheachotherto
acquirestartupsinordertomeetenduserdemand,theenduserintheenergymarketcannot
distinguishelectronsproducedfromcoal,thesunorthewind(unlessthegovernmentprices
15

thecostofcarbonappropriately).Incumbentsarethereforenotpressedtoacquirestartupsin
thisspace.Inthecaseofbiofuels,theinputstotheirproductionprocessarealsocommodities.
Energyproducersthereforefacecommodityriskforbothrawmaterialsandendproducts.Since
thesemarketscanexhibitsubstantialpricevolatility,itmakesrunningandmanagingthese
companiesmoredifficult.Forexample,secondandthirdgenerationbiofuelstartups
producingethanolorbiocrudeat$80$90perbarrelwerecompetitivein2007priortothe
globalrecessionwhenconventionaloilpricestopped$100abarrel,butmostwentbustwhen
oilpricesplummetedinthesubsequentrecession.
Thechallengesofbackingaglobalcommodityproducerarecompoundedbythefactthat
energyandcleanenergyaresectorswithlargeinvolvementbygovernmentsacrosstheworld.
Giventhatcleanenergytechnologieshavenotyetachievedgridparity,governmentpolicyis
alsocriticalindeterminingthepricesofinputsandfinishedproducts.Somegovernments
choosetoeithertaxcarboncontentinconventionalfuelsortobuycleanenergyatapremium.
Otherschoosetosubsidizecleanenergycompaniesthroughdirectgrantsandsubsidiesor
throughtaxbreaks.Regardlessofthepolicy,itimpliesthattheextenttowhichagiven
startupsproductislikelytobeprofitabledependsgreatlyonwhetheritisincludedinthe
subsidyorcredit,theextenttowhichcarbonistaxedorthepricepremiumatwhichthe
governmentbuysthecommodity.
Policychangesanduncertaintyarethusmajorfactorshinderingthepotentialinvestmentby
privatesectorplayersacrossthecleanenergyinvestmentlandscape.Thisisparticularlytrue
whentheperiodicityoftheregulatorycycleissmallerthantheinvestmentcyclerequiredfor
demonstratingcommercialviability.Insuchanevent,nooneiswillingtoinvestinthefirst
commercialplantiftheydonotknowwhattheregulatoryenvironmentisgoingtobebythe
timesuccesshasbeendemonstrated(basedontherulesofthepriorregulatoryregime).
Theglobalexposureofthesemarketsimpliesthatchangesintheregulatoryregimeinone
countrycanaffecttheinvestmentlandscapeacrosstheentiresector.Attractivesubsidiesfrom
Spainledtoarushofinvestmentinthesolarsectorthere.Whenthegovernmentcouldnot
honoritscommitments,itledtoawidespreadshakeoutoffirmsinSpain.However,thisnot
onlydamagedthecredibilityoftheSpanishgovernmentinhonoringitscommitmentstowards
solarsubsidies,butalsocreatedsuspicionamonginvestorsthatothergovernmentsmightface
asimilarfateiftheydidnotpricetheirsubsidiescorrectly.
USventurecapitalfirmsarenotusedtoinvestinginsectorswithalargeanduncertainrolefor
governmentpolicy.Policyuncertaintyimpliesthatfirmsandtheirinvestorslobbyforlarge
grantsthatgivethemabufferofcapitalintheshorttermandthereforereducetheirexposure
topotentiallyvolatilelongertermgovernmentpolicy.Theyalsolobbytoincludetheir
16

particulartechnologyinthesetoffirmsthatareeligibleforbenefits,whileaimingtoexclude
others.ItisnotsurprisingthatmanyVCshaveopenedupbranchesinWashingtonDCtolobby
forgrantstosupporttheirownstartups.

5. Possiblesolutions
5.1Privatecapitalmarketsolutions
Intheabsenceofenergycompaniesandutilitiesplayinganimportantroleinthisinnovation
pipeline,thealternativeforwidespreadinnovationbystartupsinenergyproductionwill
requirethestructureoftheVCindustrytochangeinkeyways.
First,itwillrequiresignificantlylargerfundsthanistypicalforventurecapitalinvestors.Indeed
KleinerPerkins$500MGreenGrowthFund,andKhoslaVentures$750Mfundareexamples
ofsuchatrend,butthesectorwillprobablyrequireevenlargerfundstosupportthescaleup
requiredbyenergyproductioncompanies.Themajorityofventurecapitalinvestorsinclean
technologydonothavededicatedfundsforthissector,andcontinuetoraise$250300Mfunds
andmayneedtohavefargreaterlevelsofsyndication,orpresetpartnershipsacrossVCsin
ordertosustainthelevelofinvestmentrequiredbythissector.
Theproblemofraisingthisscaleofmoneyiscompoundedbythefactthatinvestmentsin
energyproductionwillrequirelongerlifefunds,sothatVCscannurturestartupsthrough
commercialdemonstrationandhencebridgethevalleyofdeath.Thuslimitedpartnerswho
investinVCfirmswillhavetocommitlargersumsofmoneythatwillbelockedupforlonger
periodsoftime.Giventhevoidinhumancapitalrequiredtogrowandrunenergyproduction
startupsintheshorttomediumterm,VCswillneedtospendsignificantlylongerwith
individualportfoliocompaniesinordertoensurethattheycontinuetobesuccessful.However,
thelongertheyneedtospendhelpinganyonecompanytomature,thefewerfirmstheycan
committoworkingwith,sinceeachfirmwilltakealongerproportionoftheirtime.Thishasan
impactontheeconomicsofthefundandthereturnstoindividualventurecapitalpartners.All
ofthesefactorsimplythatifventurecapitalinvestmentintheenergysectoristobesustained
intheabsenceofearlyexitopportunities,itwillrequirearadicalreworkingoftheVCfund
structuresandterms.
Overcomingthesechallengeswillbecompoundedbyanotherfactorassociatedwiththe
emergenceofanewindustry:learningthroughexperimentation.Investorsinnew
technologiesgetfeedbackontheirprocessofduediligence,thetypesofentrepreneurswho
aremostsuccessful,andanunderstandingofthechallengesfacedbycertaintypesofbusiness
modelsovertheinvestmentcycle(Goldfarbetal2007).Thisisalsoaperiodwhenageneration
17

ofnewentrepreneursarise,driveninpartbythemanyfirmsthatfailduetoatechnologythat
didnotwork,butwheretheentrepreneursdevelopedagoodworkingrelationshipwiththe
venturecapitalinvestors.IfclustersofstartupsinenergyproductiondoemergeintheUS,the
locusofsuchanecosystemmayalsoinvolvecitiessuchasHouston,DenverorMinneapolis
wheretheworkforceandpossiblebuyersofenergyproductionfirmsareoftenlocated.Ifthis
happens,itwillalsorequireachangeinthewaythatVCssourcedealsandengagewiththe
wholenewsetofotherintermediariessuchaslawyers,headhuntersandotherservice
providersthatwillemergetoserviceinvestorswhospecializeincleanenergysectors.
AlloftheseprocessesdevelopfasterwhenthecycletimesforexperimentationbytheVCsare
smaller.Inthecontextofcleanenergy,thefeedbackismuchslower,drivenbythedualstages
ofriskandthelongercycletimesofcleanenergy.Manyplayersthereforeseeacriticalrolefor
governmentinsupportingthegrowthofthecleanenergyinnovationpipeline.
5.2GovernmentSupport
TheUSgovernmenthasplayedanimportantroleinsupportingcleantechnologyinnovationin
theUS.However,thevastmajorityofthishasbeenonthesupplyside,throughthedirect
supportofspecificgovernmentanduniversityprograms,grantstosupportprecommercial
fundingofnewstartupsthroughtheARPAEprogramandattemptstobridgethevalleyof
deathforindividualprojectsthroughtheDepartmentofEnergysloanguaranteeprogram
(Roberts,LassiterandNanda2010).
Whileclearlyveryhelpfulinattemptingtoaddressthefundinggapsinherentintheenergy
innovationpipeline,akeyaspectofensuringthatthepipelineofnewprojectscontinuetoget
fundingfromtheprivatesectorwillbetoensurethatthereisavibrantsetofexitopportunities
forthesestartupsbeforetheyhitthevalleyofdeath.Whilegovernmentguaranteeddebtwill
helpreducesomeofthisrisk,widespreadexperimentationanddeploymentofnew
technologiescanonlytakeplaceoncestartupshaveaclearpathtobeingacquiredorgoing
publiconthecapitalmarkets.Thegovernmentcanthereforedomoreintermsofmakingexits
easier.WenotethreeinterestingideasthathaveemergedthroughourdiscussionswithVCs
andthatarealsoechoedinthebroadercommunityofinvestorslookingforsolutionstothe
valleyofdeath(BloombergNewEnergyFinance,2010).
Thefirstareawherethegovernmentcanmakeasignificantcontributionisthroughstable,
predictableandlongtermpolicymeasuresaimedatstimulatingdemandforcleanenergy.
Removinguncertaintyaroundpoliciesreducespolicyriskdramaticallyandmakesiteasierfor
theprivatecapitalmarketstoplantheirinvestmentsaccordingly.Furthermore,intheabsence
ofenduserpressuretodriveM&Aactivity,thegovernmentcancreatethispressurethrough
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policiessuchasFeedinTariffs(FITs).WhileFITshavetheirmostdirecteffectonincremental
improvementsofcommerciallyproventechnologies,solutionssuchasemergingtechnology
auctionsmaybeabletosuccessfullycreatetheappropriatedemandfornewtechnologies.
Second,thegovernmentcandirectlystimulateM&Aactivityeitherthroughtheregulatory
systemorthroughcorporateincentives.Forexample,withoutdecoupling,utilitieswillhaveno
incentivetoadoptnewtechnologiesbeyondanythingthattheyaremandatedtodo.
Renewableportfoliostandardsastheystandtodaytendtobiasutilitiestowardsadoptingmore
mature,currentlycheapertechnologies.Thegovernmentcanalsocreateincentivesfor
incumbentfirmstoactasfirstadoptersfornewtechnologies.Thesecaneffectivelyhelpto
bridgethevalleyofdeath,createmoreearlystagefundinganddrivethegrowthofa
sufficientnumberofstartupfirmstoultimatelycreatelargefirmsthatwillcompetewitheach
othertoacquireforthenextgenerationofstartups.
Finally,thegovernmentcancreatepublicprivatepartnershipfundsthatcanhelpeitherwith
firstcommercialtestingorasmechanismsthateffectivelycompetewiththeincumbents.
CreatingthiscompetitioncanhelpstimulateM&Aactivityinthesectorandhencedrivethe
innovationpipeline(BloombergNewEnergyFinance,2010).

6. Conclusion
VenturecapitalhasbeentheenginebehindthewidespreadinnovationintheUnitedStates
overthelastseveraldecades.Towhatextentisitadequatelypositionedtohelpwiththerapid
commercializationofcleanenergytechnologiesoverthecomingyears?
Therehasbeenarapidinflowofventurecapitalbackingcleanenergystartupsinthepastfew
years.Whilethereareseveralstartupsincleanenergythatarewellsuitedtothetraditional
venturecapitalinvestmentmodel,ouranalysishighlightsanumberofstructuralchallenges
relatedtoVCinvestmentinthesectorthatareparticularlyacuteforstartupsinvolvedinthe
productionofcleanenergy.
Manyhavearguedthatcontinuedinnovationinpowerproduction(whichaccountsfor40%of
CO2emissions)isofgreatimportancefrombothanenvironmentalandanenergysecurity
perspective.Wearguethatlongerterminnovationinthisspacebyventurebackedstartupsin
theUSwilldependcriticallyontheabilityoftheinnovationecosystemtoadapttothedifferent
structuralcharacteristicsofthecleanenergysector.
Oneofthemostimportantbottlenecksthreateningtheinnovationpipelineinenergy
productionistheinabilityofVCstoexittheirinvestmentsattheappropriatetime.Thishurdle
didexistinindustriessuchasbiotechnologyandcommunicationsnetworkingthatfaceda
19

similarproblemwhentheyfirstemerged,andwasultimatelyovercomebychangesinthe
innovationecosystem.However,incumbentsintheoilandpowersectoraredifferentintwo
respects.First,theyareproducingacommodityandhencefacelittleenduserpressureto
adoptnewtechnologies.Second,theydonottendtofeelasthreatenedbypotential
competitionfromthesecleanenergystartups,giventhemarketstructureandregulatory
environmentintheenergysector.Whilethisisparticularlytrueforenergyproduction,this
challengeisalsopresentforstartupsintheenergyefficiencyandtransportationsubsectors.
Wehighlightthattheproblemisunlikelytogetsolvedwithouttheactiveinvolvementof
government.Evenifitdoes,historicalexperiencesuggestsitmaytakeseveralyears.
WhiletheUSgovernmenthastakenimportantstepstofacilitatethefundingofradical
innovationsincleanenergy,akeyaspectoftheinnovationecosystemthatwillberequiredto
makethissustainablewillbetojumpstartanactiveM&Amarketforcleanenergystartups.This
willeffectivelybridgethevalleyofdeathinboththecapitalmarketsandthelabormarkets,as
wellasstimulatemoreupstreamfundingofcleantechnologystartupsbyventurecapital
investors.Whileadirectpolicyoffacilitatingexitforventureinvestorsmightbeexpectedto
generatesomepoliticalresistance,wehighlightsomeoptionsthatVCshaveoutlinedthatmay
gosomewaytowardsresolvingthebottleneck.

20

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