Is the love affair between Silicon Valley and green energy coming to a close? The Wall Street Journal reports that Silicon Valley venture capitalists are learning what the rest of us have known for some time: most green energy projects simply aren’t profitable. A recent survey of venture capitalists suggests that these investors are preparing to pull their money out of green ventures in record numbers in 2013 to invest in more traditional enterprises.
This reversal has been catalyzed by a number of embarrassing IPO failures in recent years, especially in companies associated with an investment firm blessed by the participation of Al Gore:
Last week another green company backed by Kleiner, Glori Energy, withdrew its plans for an initial public offering (IPO), blaming poor market conditions. Perhaps Glori will be able to go public next year, and IPOs are a great way for venture investors to cash out of an investment, but Kleiner has enjoyed very few of them in its clean-tech portfolio.
And what appeared to be a true success earlier this year is looking, well, less so. On Wednesday the Journal pronounced Enphase Energy, a Kleiner-backed company that went public in March, the worst IPO of the year. Shareholders who bought at the opening lost about half their money in nine months. The shares of Kleiner-backed Amyris Inc., AMRS -0.76% a biomass company, have lost more than 80% of their value since the firm’s 2010 IPO.
VentureSource counts more than 60 companies engaged in “clean tech” that have received investments from Kleiner Perkins. Kleiner calls its environmental investments “greentech” and says that among the green firms receiving Kleiner equity investments, three have been acquired or merged into other companies. The assets of another company were sold. But since Mr. Gore joined up in 2007, Enphase and Amyris are the only two Kleiner green companies to go public, and their performance doesn’t leave investors begging for more.
It’s about time. For years, it has been painfully clear that most green energy projects were not ready for prime-time, and major debacles like 2011’s Solyndra collapse are only the most visible examples. Most green investments have been political rather than business investments: the assumption behind them was less that their products were economically viable on their own than that government would provide subsidies or force people to buy what they made. As the global green agenda fell to bits, America’s new energy boom dispelled peak oil fears and the Obama administration threw cap and trade under the bus, the economic prospects for green tech investments steadily dimmed.
Year after year, hundreds of millions of dollars were sunk into ambitious green enterprises, yet the expected return on these investments never quite materializes. Most of the investors in these projects are smart individuals and successful businessmen in their own right, and there’s only so long that they will accept the repeated failure of their investments.
Green tech has a future and will not go away, but the loss of Silicon Valley money matters. Enthusiastic, liberal investors from Silicon Valley were drawn to these start ups on ideological as well as economic grounds; green tech start ups that face a more skeptical investor community will have to develop stronger business plans based less on hypothetical captive markets and more on actual ability to succeed in the market. In the long run, that is a very good thing.