Clean Tech Not Yet a Great Business Opportunity

Last Updated Oct 20, 2010 1:41 PM EDT

Yes, President Obama's administration has targeted clean tech as an industry worth funding with taxpayer dollars. The world wants to buy green products. Entrepreneurs want to get in on the ground floor. And established companies are feeling public pressure to make their businesses environmentally sustainable.

What a great opportunity for entrepreneurs, right? It's Silicon Valley all over again! But have you noticed that clean tech companies are not exactly popping up out of the greenfields to service your eco needs? In fact, venture funding in this sector is declining, not expanding, according to recent data from the CleanTech Group.

There are a number of reasons for this disconnect between clean tech and venture capital, including a lack of executives who are experienced enough in this field to start and run companies.

But here's a bigger reason: the venture capital industry is not really set up to make investments in this sector. The problem is that VCs need a quick payoff. With an Internet start-up, for example, VCs can exit at any number of stages -- product launch, acquisition, IPO -- within a few short years and with a profit. But establishing a clean-tech company is decidedly a long-term process.

First, creating a concept-proving prototype of something like a car battery or a coal scrubbing system can take years, not the weeks or months that is common in the Web world. Furthermore, when a prototype is ready to go, companies often require more rounds of massive VC funding to scale up to production volumes that are economically viable.

There is another fly in the biodegradable ointment, as far as financiers are concerned: public policy. At this early stage, the government is not only a primary bankroller of embryonic research, but is also building a regulatory and public policy scaffold that all can be tipped over when the next political administration comes into power. Not exactly a stable investment environment.

So what is an entrepreneur to do? Unusual advice comes from Joseph Lassiter, a Harvard Business School professor and expert on entrepreneurship, who counsels students eager to get in to green business to instead go work in government for awhile. On the inside they can learn how ppublic policy shapes the business climate, and also be an agent for change.

Lassister tells HBS Working Knowledge: "I want them to think about government service. Whether you like the government or don't like the government, somehow we need to get more smart people into the government."

Read Venture Capital's Disconnect with Clean Tech for more details.

So how would you solve this structural dilemma between how VCs fund new businesses and the longer-term requirements of creating clean-tech businesses? Is a new type of VC needed? Or is Lassiter's solution the right one, sending smart people to the place where much of the clean-tech landscape is being formed: in government.

(Photo by Flickr user Beezum, CC 2.0)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.