Venture capitalists have been pouring into the energy space for the past few years in hopes of reaping the sorts of profits they did with semiconductor, software, and Internet companies. But Earth2Tech's Katie Fehrenbacher, who covers green tech startups, argues that they've misjudged the industry into which they've plunged. Their experiences with Moore's Law linked industries has led them to believe that energy tech will advance at a similar speed. It won't though, and the idea that it will could more rightfully be called Moore's Curse.
I think the slow pace of innovation in the energy industry has been fundamentally miscalculated by some of the first wave of venture capitalists that have backed energy companies. Just look at some of the leading next-gen biofuel firms, the solar thermal plant builders, and the thin film solar developers, and you'll see that it's not uncommon for these firms to have taken hundreds of millions of dollars of venture investment betting on the idea that an extra bit of innovation would lead to reduced costs. But most of the companies in these sectors have not yet reached commercial scale because of cost barriers, and many are approaching a decade old.
The classic model of venture success in the dotcom and IT eras - some three to five years to a 10x return exit -- doesn't commonly ring true for energy startups. They're requiring heaps more investment and many more years to get to market (if they make it). The returns - even for successful IPOs like A123Systems and Tesla - are generally on a smaller scale for most of the investors because the companies have needed to raise hundreds of millions of dollars in equity. At the end of the day it takes a lot more money to manufacture cars and batteries than, say, build Twitter.
Attempting to mimic the timelines and returns of the IT venture model, is one reason why greentech VCs have been eager to invest in the intersection of green and IT.
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