Here’s why Rob Day, prolific clean tech investor and partner at Black Coral Capital, says things are looking up: There’s a steady stream of talent moving into the clean tech sector from the mainstream IT sector; successful investments from limited partners will tempt VC firms that have left the sector to re-enter it again; and, there’s greater sector diversification.
“What we’re starting to see now are actual proof points of what this next wave of clean tech is going to look like,” said Day, speaking at the Wall Street Green Summit in New York City last week.
While Day acknowledged that there are fewer institutional investors in clean tech, there’s a “next wave” just ahead.
For example, several successful clean tech exits (i.e. Opower’s IPO on Friday) and companies in the pipeline have boosted the courage of limited partners interested in investing in clean tech. That success will seduce VC firms that have stopped investing in the sector, such as Kleiner Perkins Caufiled & Byers, to jump back in.
Plus, more family offices are investing in the clean tech sector, filling the void left by VCs who have stepped back. He pointed to the Cleantech Syndycate, which is a group of 13 family offices with $2 billion committed to direct investing in clean tech.
In addition, Day said he sees clean tech as a “megatrend” that underlies a host of other sectors. Thinking about clean tech not as a single sector but as “lens to identify opportunities” will help bring out investors focused on finding returns, but aren’t necessarily clean tech focused investors.
For example, some of the early backers of Nest weren’t all that interested in the fact that the thermostats – which can lower heating and cooling bills by 20% – were energy-saving devices. Instead, they were interested in investing in Nest CEO and founder Tony Fadell. Fadell was behind the first 18 generations of the iPod and the first three generations of the iPhone.
Flexibility is Key
Day said venture investors should consider being flexible in their investment approaches in areas like new financing platforms and project financing to get more value from their investments. He expects to see innovative new financing vehicles and platforms and new approaches in the sector by VCs in the future.
Black Coral, for example, invested in Noesis Energy, which provides a financing platform for energy efficiency upgrades in buildings. Another example is One Roof Energy, which provides financing for residential solar rooftop installations. And, Clean Energy Collective develops community owned solar energy solutions for electric utilities and their customers.
Furthermore, Day said he expects to see further diversification of what falls under the rubric of clean tech investing. As an example, he cites his own due diligence into a “mobile workforce optimization solution” which could help enable the delivery of more distributed energy assets in people’s homes. At the same time, however, many people wouldn’t call it a clean tech company.
In fact, Day said the biggest opportunities for investors right now are in business model innovations and platforms that can take advantage of new upstream technologies. Smart investors are focusing on energy efficiency and a shifting in the value chain towards “downstream” business models that accelerate the adoption of upstream clean technology innovations.
He cited Digital Lumens, a recent Black Coral investment, an example this business model innovation, which combines both hardware and software to deliver superior lighting solutions that save 90% on people’s energy bill.
“We want to be backing platforms and, when it comes to hardware, the full stack solutions that allow us to take advantage of those upstream cost reductions.”
The ‘Energy-Data Nexus’
Another major investment trend Day is focused on now is the marriage of energy and data. The coupling is driven by the IT industry’s growing demand for energy and analytics. This key trend, he said, underpins the Internet of Things and automation, where the use of energy data is unlocking opportunities for greater energy efficiency. (Day explains this phenomenon further in his recent blog post here.)
He cited his investment in Noesis Energy as an example of an investment he made in the energy-data nexus theme, as they are using data to identify energy efficiency project opportunities in buildings.
A Word of Caution
Finally, at the conclusion of his remarks, Day dropped a caveat about energy storage. Although he sees energy storage portrayed as the “hot thing” now for investors, given the commercialization of storage technologies, he urged VCs to be cautious.
He said energy storage “looks a lot like solar panels to me.”
But, he said, what excites him about this boom in energy storage is new downstream business model innovations that take advantage of on-site energy storage.