Venture Capital's Disconnect with Clean Tech

MBA students often fall into one of two categories—those hungry to rush into careers as venture capitalists, and those eager to found a venture-funded start-up. For all of them, Harvard Business School professor Joseph Lassiter has some intriguing advice: Spend a few years working for the federal government or a large corporate player first.

Those business school students and young venture capitalists frequently share a common misconception about start-ups in the heavily publicized clean-technology field, according to Lassiter, who teaches courses in both entrepreneurial finance and building green businesses.

"They tend to think clean-tech investing is like Internet investing," he says. "They think, 'It's gonna happen fast, and it's just gonna happen.' And the answer is no, it's not gonna be fast, and it might even not happen."
There are a couple of key differences that make the various clean-tech sectors and the broader green business world vastly different from the historically well-funded Internet start-up industry. In the Internet start-up world, VCs can reasonably assume that a company can go from launching a product to getting acquired—or even going public—within a few years. But clean-tech doesn't work that way.

This creates a catch-22 situation. A clean-tech company can't prove its ability to scale without actually scaling. And venture capitalists are wary of funding a company that can't prove its ability to scale.
Valley of Death

It's a problem that has squelched many promising start-ups, which, without multiple funding rounds, fell into a financial "Valley of Death"—that precarious stage between researching and developing a product and actually going to market with it. "You could raise enough money to fund the bench science, but not enough to build a prototype," Lassiter says. "The scientific risk of moving from the lab to the product was too great."
"The cost curves you see in renewable energy are falling fairly predictably," Lassiter says. "But public policy is remarkably volatile…and the entrenched political opposition to changes in energy and environmental policy is unbelievably strong. For the time being, public policy support in the form of subsidies or mandates is required if renewables are to be used."
Learning from government

To that end, Lassiter suggests that learning how policy affects business is one way to assure future success as a venture capitalist-especially in the clean-tech field. Actually effecting policy change is another way. That's why he's pushing would-be VCs at Harvard Business School to spend some time working in public policy positions after they receive their MBAs.

"I want them to think about government service," he says. "Whether you like the government or don't like the government, somehow we need to get more smart people into the government."