First, we need to see giant sums of capital, dwarfing anything in VC, flow to low-risk, already established solar, wind and storage technology, often in countries with weaker currencies and much higher financing costs than the nearly free money we can access in the United States. By our estimates, more than $30 trillion, and therefore more than 10% of all investable capital in the world, needs to be invested in the coming decade, at rates of return of no more than a few percent; otherwise, clean infrastructure will not proliferate fast enough to combat the relentless tide of climate change.
The good news is that giant sums of capital are
currently languishing in bonds at rates of return below those in renewables.
One of the challenges of this decade is to incentivize other sectors of the
financial markets to reallocate some of that capital, especially in emerging
markets where demand for power, transportation, materials and food is growing
quickly. VC, with its demand for high returns and mismatched scale of capital,
will have little bearing on this giant, but pivotal, infrastructure challenge
and opportunity.
Many point to “impact investing” as a way
around this problem. And it’s true: During our early years, we were often the
only capital available to a new startup, and therefore we had the leverage to
demand a high return. We could invest in high-impact initiatives without
sacrificing our financial incentives.
But as we have been joined by many new funds in
pursuing clean tech opportunities, the balance between impact and return has
become harder to strike. We need to recognize the potential incongruence
between high returns and high impact, and VCs today need to add singular value
to justify a higher cost of capital and also remain disciplined amidst great
enthusiasm in the sector. It’s very tempting to chase “hot” opportunities and
shift focus to proliferating more mainstream technology. From my perspective,
clean tech is still ripe for breakthrough technological innovation and the best
and most impactful VCs will maintain a contrarian philosophy and focus on areas
that are unpopular and unable to otherwise attract capital at an early stage.
Second, the importance of government
intervention cannot be overlooked. The market is not pushing incumbents in the
energy and other industrial spaces to transition away from dirty, fossil-based
systems fast enough. Despite the promises of net-zero pledges and the growing
accountability for results demanded by shareholders, government mandates likely
remain necessary to speed up this process.
