13 September 2011

Peter Thiel: Cleantech a Disaster? Well, not exactly...

Thiel Airing His Grievances
Peter Thiel has an ongoing beef with cleantech.

Thiel, in his seemingly annual fireside chat at TechCrunch Disrupt, told the audience, "With innovation in transportation and alternative energy forms stalled, cleantech investing has become a disaster that has scattered Silicon Valley investors and left the U.S. behind in terms of innovation," according to Matthew Lynley, writing in VentureBeat yesterday.

"Cleantech is an increasingly large disaster that people in Silicon Valley aren't even talking about any more," said Thiel, an early Facebook investor, co-founder of PayPal and president of Clarium Capital. "The failure in energy and transportation points to a larger failure in clean energy — we aren't moving any faster, literally, than we were when modern airplanes first came out."

"We need some­thing cheap­er, not more expensive," he said. "It doesn't mat­ter if the energy is cleaner, it doesn't work if it's more expensive."

Thiel has ridden this horse before, as in a year ago at TechCrunch Disrupt and again last winter at the Commonwealth Club in San Francisco.  That was before the Solyndra failure.  The more he says it, the more it tends to sound...well, true.

There are essentially three problems for VCs and cleantech: 1.) cleantech is often too capital intensive and technology dependant; 2. ) returns or exits, if they happen at all, tend to be in 7-10 years rather than 3-5; and 3.) when exits happen, they aren't as lucrative as what VCs see from other investments.

I respect Thiel and like some of his ideas -- such as funding college students with good ideas so they can drop out to pursue them -- but he's got some odd notions about what will work in cleantech.

Thiel told the TechCrunch Disrupt crowd that "one potential route for cleantech energies is to work with something that’s slightly more environmentally friendly than current sources — natural gas. It's a cheaper form of energy that's much more ubiquitous, and has less of an environmental impact than most energy sources today, but has not been harnessed."

This ignores the environmental issues associated with fracking that are plaguing the exploration phase in places like New York and Pennsylvania, where the Marcellus Shale gas development has run into stiff opposition.  Some focus on technologies to mitigate or eliminate those impacts may be a good bet or technologies to clean up coal use.

Thiel also suggests that "entrepreneurs and governments should explore nuclear power options because they are more energy-efficient." But nuclear is even more capital intensive than most cleantech, unless you're talking about small-scale new units most of which are just not ready for prime time.

And, finally, that "most of the people who run cleantech companies are sales people, not engineers," which hasn't been my experience.  (Of course, if Thiel is paying engineers to drop out of school to pursue their ideas, he may be a creating a self-fulfilling prophesy.)

No mention of the blurring of IT and cleantech/greentech, such as smart-grid or energy efficiency technologies that may be more conducive to a VC approach, but also companies that are involved in consumer financing for greentech solutions, such as SolarCity, SunRun or LVestus. 

So Thiel is partly right and partly wrong about cleantech.  When Thiel is thoughtful and not glib, he's right to raise questions and criticisms.

As you know, I believe a healthy does of skepticism can be a good thing.  Even in cleantech.

While cleantech VCs would do well to learn the art of losing, it's not (write it!) a disaster, to paraphrase poet Elizabeth Bishop.   

I couldn't agree more with Thiel when he says, "What's desperately needed in our society is companies that represent genuine progress, not just frantic change from one fashion to another."


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