The future of clean-tech investing

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>> As we sit here a couple of years from now, what might the clean -- "clean tech venture" market look like?

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Inaudible comment

>> I think what we'll find is the venture community finally wakes up and realizes that it's not an energy, it's not about technology. It's about policy and resource control. He who owns -- he who's there and head of the policy or he who owns the resource makes the bucks. Technology will end up like the oil industry where technology becomes the, one of the factors that allows you to rip the resource out of the ground that you already own and make money off of it. And the real path to dollars is getting a hold of the resource. There is no capital-efficient strategy; it's about how much bucks can you deploy? Can you get... can you get it levered to the hilt? And are you able to find it and rip it out of the ground faster than anyone else?

>> Okay, first point.

Laughter

>> I'm gonna let Abe inaudible clean up on this one. But, yeah... I'm actually sort of hearing the former CEO of Wal-Mart's voice in my head when he -- he said something like, he was asked a question a few weeks ago, and he said something to the effect of, "I don't really see how answering that question honestly does me any good."

Laughter So, but that said, I actually -- I think that the -- now, are you asking specifically about where venture is headed or clean tech venture is headed?

>> I'm gonna give you a hall pass. Answer how you want it.

>> I respectfully disagree with Neil, and I, I believe that there are -- you know, capital efficiency is one of these questions that has kind of played clean tech. Everyone's talked about, "Are there ways to invest in clean tech in a capital-efficient way?" And... you know, I think it's the wrong question because we've seen a lot of companies that would never be deemed capitally efficient companies get invested in, using venture models and do pretty well. We're actually in a couple of them. And the way that that works is it's more about the capital timing and the capital transparency than it is about -- and anticipation of when that capital comes in -- than it is about capital intensity. You look at any venture-invested business. When it gets to scale, it requires capital. What we do well at is investing small amounts of money, D-risking those technologies, D-risking those execution strategies and the team-builds and getting to a point to where people are willing to pay to put that capital into those companies. And so I think that, what people have to recognize is the venture model is really one of small dollars doing a lot of D-risking, getting to a point where you can get capital to flow into those companies at a value where the early investors make money. And... you know, one of the things that's challenging in that regard is, obviously, where's the money gonna come from down the stream? And I think that in today's market, that's a hard thing to tell. I think a lot of the -- obviously the debt markets are pretty dried up, although we were talking about it earlier and, you know, depending on what your, what you're building, there's money out there. I think that we have to expect, or we've got much bigger problems that the world is going to return to a more healthy state than we see today. And I think that a lot of these companies, a lot of people are going to invest in companies that rely on that and then make a lot of money as a result of that. So in terms of clean tech, I think we need to sort of put... to bed the capital efficiency question. But I think that what we're gonna is also a lot of venture investors playing around the edges of that. So trying to identify these truly capital-efficient models where they're, you know, they're going out there saying, "From our perspective, we don't even wanna risk that we need capital downstream." You're gonna see a lot of people investing those spaces, but I don't think those are gonna be the biggest exits in the world. I think those are gonna be the sort of singles and doubles and maybe triples. In some cases, we'll be surprised and there'll be some home runs from that kind of investing. But I think there's a promising future, and I think, to me, in clean tech, one of the biggest question marks -- and I think the most hopeful element of it all is really this regulation of carbon. I think that, to Neil's point I do agree that the venture community's gonna wake up to the fact that this is a fundamental transition in the way we think about the industrial economy and it's going to affect almost everything we look at as opportunities. And you know, we can, when we start to understand how it's changing that landscape, people are gonna recognize that there's very big opportunities to invest in out there. But fundamentally, the minute you start putting a price on carbon, a lot changes. And so, I'm looking forward to that day.

>> It's always fun to be on a panel with Neil.

Laughter So, for those of you who didn't pick that up, Neil basically just argued for the demise of a clean tech venture community, period. So we'll stay away from venture in general, but on clean tech specifically, I'm actually not sure I disagree on the carbon piece, in terms of carbon as a commodity. Commodity markets in general are tough places for really expensive capital to play. You need really big balance sheets if you're gonna go and start trading. Projects are a different story entirely. You can't get the kind of returns that we need per deal. So on the carbon piece, we could have a healthy debate about that. I'm not sure I disagree entirely. On... clean tech investing overall, this is an enormous market. And one thing that's beautiful about all this carbon stuff is that if you're putting a price or a cap and trade on carbon, that has implications to everything else we do because it's in everything we do. So we're now increasing the prices of energy, we're increasing everything, the price of everything that has a lot of embedded carbon and embedded energy. And so that's gonna have implications on all our other investment sectors. From smart grid to solar, to even transportation, electrification of... our transportation, and pretty much energy efficiency. Of course, everything that we touch as clean tech venture investors, on investing in carbon specifically, we're still gonna certainly keep looking for, you know, the tools that can be big enough for us as a decently sized venture fund to make a lot of money for ourselves and for the entrepreneurs and for our limited partners, but I think that proof is gonna be in the pudding if we follow the reasoning that Neil just took, which is, people are gonna make the money are the people who own the resources. We don't have enough money to own resources as a venture fund.

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