Cleantech Startups Chasing Funds -- and Only the Feds Are Players

Last Updated May 25, 2010 1:50 PM EDT

DENVER -- Clean energy technologies are in a strange place right now. Interest in batteries for electric cars, solar cells, wind turbines and biofuels has never been higher, but there is very little venture capital funding available to take even the most promising companies through the "valley of death" from start-up to commercialization.

There were a bunch of entrepreneurs chasing funding at the Nano Renewable Energy Summit in Denver. If you're not familiar, nanotechnology takes advantage of the fact that many common substances -- metals like iron and tin, for instance -- have radically different and useful properties when reduced to the nanoscale. A nanometer is a millionth of a meter, which gives you an idea of the tiny particles we're dealing with here. The conference highlighted green energy plays using nanotechnology ingredients--such as a low-cost catalytic converter that uses nanoscale ceramics, and lithium-ion batteries with nano coatings for more efficient power deliver.

The federal National Nanotechnology Initiative, with funding spread over many agencies, will award $1.8 billion in funding in 2011.

I was fascinated with a panel featuring Jim Hurd, who advises start-up businesses through his Molecular Business Consultants on how to find funding. "There's a fundamental shift underway, and two thirds of the venture capitalists operating today will not be in business in three years," he said. "As Charles Darwin said, you have to adapt or die." Hurd pointed out that corporate-based venture capitalists are a good source of investment today "because they don't have to get 10 times their money back. If an investment helps their company strategically, it's a win for them."

Hurd operates the GreenScience Exchange, which sets up seminars in China, and he is a frequent visitor there. Hurd points out that the Obama Administration invested $17 billion of stimulus funding in renewable energy, but the Chinese government is a much bigger investor. "Foreign governments are funding a lot of early stage renewable energy development," Hurd said. "China has very few Series A investors, because it's so risky. The funding is coming from the state and federal governments."

Renewable energy investments are by their nature long term, and many U.S. venture capitalists are favoring software companies, Hurd said. "They're the darlings of the VCs right now, because they can write code quickly, and with a little bit of investment get to profitability in a hurry."

A number of battery companies are hurting for investment today, and some EV startups are stuck on the launching pad, unable to get their prototypes into production. Nano-enabled car battery company A123, which startled the investment community with the rapid rise of its stock price after it went public, has since seen that same stock sink back down to $9 a share. Nano coatings enable the company's lithium-ion batteries achieve higher energy density.

The only game in town, for many, is the federal government. Anita Balachandra of technology policy consultants TechVision21, on the panel with Hurd, has closely watched federal funding of clean technology. "The federal government has low tolerance for risk, and it has its own constituencies and political considerations," she said. But it is also putting $150 billion over 10 years into research and development for green energy and increasing the budget for nanotechnology applications.

A very interesting federal funding source, she said, is the Department of Energy's ARPA-E, which in March awarded $100 million in funding to 37 projects all over the clean energy spectrum. Money is so tight that there were 3,700 submissions, which overwhelmed the agency. ARPA-E's proposed 2011 budget is $300 million.

Even $300 million will not go far. Balachandra noted that the total U.S. funding for renewable energy doesn't equal what China spends in a month. "The DOE needs to add another zero to its funding amounts," Hurd added.

Photo: Fisker Automotive