The Six Ways to Create Venture Capital Returns in Cleantech

In my last column, I rushed us through my take on 15 years of cleantech venture capital history. Because if we’re going to look at the path forward, we need to understand how we got here in the first place. I would also refer everyone to Matthew Nordan’s great four-part take on the state of cleantech venture capital from a little while back, particularly Part 2, where he argues that cleantech has performed at par with the overall venture capital category.

To which I would say: nuts to that.

It’s not that I in any way wish to slight Matthew’s smart analysis; it’s a must-read. But if the conclusion is that cleantech has been at par with other sectors simply because on average it has returned capital? We can do better than that. As an asset category, venture capital is supposed to be out at the end of the risk-reward curve, and thus should generate outsized IRRs. But just how to do that in cleantech — that’s the as-yet-unanswered question.

So what will generate big returns for any venture capital investment? Growth, obviously. And profitability. And a high earnings or revenues multiple at time of exit. And a timely exit at that. Pretty simple, right? Buy cheap, grow quickly, sell high. Except all of us investors have seen plenty of good business ideas that don’t fit this profile. And we’ve also all invested in businesses that we thought would produce this, and didn’t.

via The Six Ways to Create Venture Capital Returns in Cleantech | Cleantech Investing : Greentech Media.

Categories: Energy, Finance