Failed climate deal, but an improving start-up climate?

December 23, 2009

The front page of today’s WSJ business section reports on two items having to do with our industry:  (1) how ‘clean-tech’ firms are responding to the failure in Copenhagen and (2) the overall outlook for the venture capital industry in 2010.

Green firms are pivoting from an international game to focus on how to exploit opportunities at the national level, and 2010 looks to be an improvement over “one of those years that the venture industry will just be glad they managed to get through.”  We’re concerned that the “clean tech” sector is “over-invested”, i.e. too much capital chasing two few viable business models.  There’s no question that big companies will be built in the clean-tech sector, but the risk-reward ratio continues to worry us, particularly in light of the government’s increasing, but often fickle, involvement in the industry.  If the industry continues to grow, there should be a number of new opportunities for interested Southeastern investors.

As for an improving investment environment in 2010, we’d be as pleased as anyone for a 2010 stronger than 2009, but we can’t help but note the “West Coast” bias in the report.  Despite tough economic conditions, the Southeast has continued to nourish rapidly growing private companies, and we were pleased to make five investments at BPV and close our second fund.  If you’re not dependent on a robust IPO market for exits (as many West Coast VC funds are), there’s no reason 2009 can’t turn out to be a good year for investments, as the economy improves and investors benefit from somewhat reduced valuation expectations.  Some of the best returns in the history of the private equity industry have come from investments in “difficult” years.

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