Friday, November 21, 2014

Startups Shine at Cleantech Open 2014 Global Forum

The Cleantech Open held its 2014 Global Forum on San Francisco's Treasure Island and I had a first-hand view of the action.  My direct involvement this year culminated with the previous day's final pitches and investor connect speed rounds at a Financial District hotel.  I stayed for the Global Forum because thought leaders invariably have insights that make my day.

I won't disclose anything proprietary from the pitches and speed connections on day one, but I do have some random thoughts to share.  My general impressions of this year's startups were very positive.  Most of the startups I directly observed presented business models that were mature enough to deserve investor due diligence prior to funding.  That is a high bar to pass and it speaks well of the program's volunteers who helped the startups refine their plans throughout the year.  The most thoughtful startups recognized how their business models leveraged something beyond their core technology, like marketable Big Data or the potential for extended servicing.

Here is the singular cautionary tale.  One participant I encountered seriously expected the financial model of any business focusing on a developing country to need a liquidity buffer, but not for the usual unforeseen problems.  He envisioned the buffer to accommodate payments under the table, as if he expected Foreign Corrupt Practices Act (FCPA) violations.  The people around him chuckled but I do not consider that to be a laughing matter.  One startup had a savvy strategy to leverage a local culture's shaming traditions if a corrupt official stood in their way.  I would suggest a mitigating strategy of anti-bribery clauses in legal agreements for franchises and joint ventures.  This means pulling the franchise agreement of any local partner caught bribing an official, and reporting the incident to both the US and local governments.  I have a low opinion of American business people who suggest that FCPA noncompliance is excusable.

The CTO's corporate partners pitched their support services prior to the speed dating round on the first day.  Wells Fargo is stepping up with its Innovation Incubator.  I also discovered the Wells Fargo Startup Accelerator for financial technology ideas.  I'm glad I bank with the Wells Fargo stagecoach.  I missed the NREL Industry Growth Forum this year but it will go on my calendar in the future.  These sponsors are careful to structure their services and partnerships in light of recent IRS rulings on open source innovation,  Corporate sponsored non-profit incubators must share their results with the public to preserve the sponsor's preferential tax treatment, in a nutshell.

The Global Forum introduced Stanford's Energy Transformation Collaborative.  The courses look challenging but the research grants available are more immediately relevant to startups.  One speaker mentioned how policies should address different technology readiness levels (TRLs), with research for earlier stages and market incentives at later stages.  I grok the appreciation for innovative business models that made it big, like Tesla Motors and SolarCity, but they still have not proven any consistent profitability.  The cleantech sector can gain credibility with less blind worship of innovation and more respect for a Warren Buffett-style durable competitive advantage.

Former Baywatch actress Alexandra Paul spoke to the CTO crowd about her environmental activism.  She looks rail thin in person, as you can see from the photo I took just above.  I was thinking someone needs to get her a cheeseburger ASAP before a strong wind blows her away but she's a committed vegan.  She wore this black pantsuit that was practically transparent, showing off her toned figure.  Her body of film work is as memorable as her physical body, especially in many scenes where she's in her birthday suit.  I would have preferred to see her take that transparent suit off at the Cleantech Open but we had to keep things clean (pun intended).  Her talk was full of data-free emotional connections to environmentalism that offer classic insights into how laypeople approach cleantech.  I'll bet a bunch of publicity-hungry media types in Hollywood and Beverly Hills would be pushovers as early adopters for any high-priced cleantech product they could show off to their peers. 

Venture investor Steve Westly gave a version of the talk I heard him give at SVIEF months ago where he touted his portfolio investments.  It's perfectly okay to pump your successes and I do it all the time on my blog.  Steve wants next-generation cleantech innovations that offer higher gross margins at lower capital requirements to launch.  I totally agree with his expectation that stress on the Himalayan watershed will drive conflict in Central Asia, but IMHO cleantech innovation isn't going to prevent that conflict.

The investor panel was stacked with experts from Cisco, Band of Angels, Sidley Austin, and Roda Group, and Wells Fargo.  If I had been on the panel, I would have opined that private investors won't fund basic research without a clear path to commercialization.  Well, I wasn't on that panel, so I'm saying it here.  Federal and university labs should do that basic research.  I also suspect that venture funding trends are driven by media headlines and peer pressure, not market fundamentals or deep insights.  I am starting to see this in cleantech, as the VC and IT obsession with Big Data will soon spill over into other sectors.  Big Data's unfulfilled promise lies in capturing events at the edge of the network where Internet of Things devices will reside.  I believe cleantech solutions for energy efficiency, demand management, and microgrid optimization are in the best positions to apply Big Data.  Cleantech startups will adjust those pitches, pivot to Big Data, and chase the VC money that drops out of the mobile / social sector.

My second year as a Cleantech Open mentor is over and I have a big list of promising startups to watch.  I shall return next year to whip another batch of entrepreneurs into shape.  Alexandra Paul was certainly in good shape, and perhaps she will return to give us another look at her body (of cleantech work).