01 Jun 2009
Bright Future for Green Businessby Sarah AuerbachTopics:
“There’s no better horse in the world you could possibly hitch your cart to.” That’s how Matthew Nordan summed up the state of clean, green energy at the School’s Building Green Businesses conference in early March. During the session “Crafting the Future of Green Business,” Nordan and his fellow venture capital panelists tackled two questions posed by the moderator, HBS professor Bill Sahlman: What are the opportunities in clean, green energy? And what big issues stand in the way of those opportunities?
There’s no shortage of opportunity, the panelists told the audience of mostly HBS grads gathered in Cumnock Hall. The world population is exploding, and resource use is skyrocketing, particularly in rapidly developing nations like China and India, said Nordan, president of the analyst group Lux Research. “If you do that math… it’s a ‘how’ question, not an ‘if’ question,” Nordan said.
The panelists were collectively bullish on solar energy, electric drive technology that powers hybrid and electric cars, and biofuels (including ethanol). By contrast, they were cautiously optimistic about clean coal, nuclear power, and conservation. They agreed that producing clean, green energy of any type is a thorny problem at every stage — innovation, funding, product development, and distribution.
“Big companies are not particularly good at innovating, and incumbents are very good at protecting the status quo,” said Dave Prend (MBA ’84), managing general partner of RockPort Capital Partners. “Government can help smaller innovators by pushing utilities to adopt new technologies,” he added. But Prend favors government carrots, not sticks.
The other panelists — Jim Matheson (MBA ’01), general partner at Flagship Ventures, and Carmichael Roberts, general partner at North Bridge Venture Partners — touched on several systemic problems that hold the green tech industry back. One is a failure to think about the interrelationship of resources: You can grow great biofuels, for example, but only if you have an abundant supply of water. You can desalinate massive quantities of water to solve your water problem, but only if you have abundant energy.
Nordan believes the current financing system for start-ups — angel to venture investors, followed by a public offering — doesn’t work well for green tech, which takes more time and money than most other ventures. “Venture funds are generally ten-year structures,” he explained. “It’s hard for them to go beyond ten-year holding periods without their investors … being very flexible.” To the students in the room, Nordan posed this question: “How can you form a new generation of finance that is purpose-built for the problems of our time?”
If the panelists considered the current economic downturn to be an obstacle, they didn’t betray any anxiety. The economy came up in the context of the economic stimulus package enacted by Congress in February. Nordan said it would be a boon to the green tech industry. But Prend worried that it would hurt the industry’s credibility since the stimulus money would reward all comers — both sure things and high-risk projects — and keep investors from focusing on maturing, economically feasible technologies.
— Sarah Auerbach