Invest In The Disruptive Innovation That Matters

Wal van Lierop
Wal van Lierop
© Chrysalix EVC

There is no denying the obvious: exciting apps create a big buzz. With sky high valuations and frenzied levels of investment being put into the latest apps and social media technologies, you don’t have to dig deep to discover that most of these startups don’t offer solutions for the world’s hard problems. Squandering their chances to “do good”, many Silicon Valley startups and investors are failing to foster innovation in the troubling global trends of our time: energy security and climate change.

Valuations for apps and social media plays are at an all-time high and yet Wall Street continues to opt in. Much more so than investing in the many promising, sustainable innovation deals that solve “pain points” for large industries and are still available at attractive valuations. Yet, as investment cycles go, it may make more financial sense for investors to start getting behind the next wave of disruptive technologies. If together we can solve the economic, environmental, regulatory and social pressures facing many of the world’s largest industries, we can change the world and earn a significant return while doing it.

The concentration of C02 in the atmosphere is now over 400 parts per million, the highest levels ever recorded. While that statistic may not pack much of a punch, consider this: the next 20 years will see the earth’s population jump from seven billion to nine billion people. There is no doubt that the vast majority of this population will seek the comforts of western-style energy consumption. Current models project that renewables alone will not be able to provide enough energy to satisfy these increasing demands.

However, the likelihood that breakthrough renewable technologies and innovations that make hydrocarbons cleaner and cheaper can be developed by entrepreneurs and investors is very high. We need the incredible talent, youth and innovative thinking of today’s tech startups to begin solving real, global problems and we need Wall Street to back a new breed of winners.

Our current global sources of energy are depleting and prices will show increasing volatility. According to a report from McKinsey, the average real cost of an oil well has doubled over the past decade. Despite the quadrupling of spending on exploration, new mining discoveries have been flat. New and innovative technologies are needed to not only meet the needs of the rapidly expanding global middle class, but also to sustain our current way of life.

In their recent book, Resource Revolution, Stanford University professor Stefan Heck and McKinsey Director Matt Rogers state that the resource revolution represents the biggest business opportunity in a century. Meeting increasing global energy demand will require dramatically improving resource productivity; and as innovation disrupts many large businesses from oil and gas to power and water, the forward looking management teams that apply these breakthroughs to old-school processes and markets will tap into opportunities for 10x improvements in performance, and radical new opportunities for profit.

Just four years ago, The Economist (June 1, 2010) and many others asked the question “Is green dead?” Now the song sheet is more like what an op-ed in the New York Times stated on July 17, 2014: “After years of hype, renewable energy has gone mainstream in much of the United States and, increasingly, around the world.” The growth of wind and solar installations has surpassed everybody’s expectations, as has the roll out of electric vehicles. Investments following this acceptance are expected to grow from $207 billion in 2014, to $630 billion of total annual investment in renewable power capacity in 2030, according to Bloomberg New Energy Finance.

We are increasingly seeing sustainable innovation move up the corporate agenda, as many large businesses accelerate their adoption of innovative technologies that can simultaneously improve productivity while reducing energy intensity and environmental impacts, and meeting regulatory pressures. Shell, Chevron, General Electric, and many others are already investing millions of dollars into sustainable innovation. And on the heels of the recent UN Climate Summit in New York, we have seen more than 1,000 investors and companies from 74 countries express their support for a price on carbon.

CalPERS, the $300 billion California Public Employees’ Retirement System and largest public pension fund in the US, has also called for a price on carbon emissions. CalSTRS, the $188 billion California Teachers’ Retirement System, announced its intention to boost its investment in clean energy and technology to $3.7 billion from $1.4 billion over the next five years. Bank of America announced a Catalytic Finance Initiative, designed to stimulate at least $10 billion of new investment into high-impact clean energy projects. Warren Buffet has said he is looking to double his current $15 billion in investments in renewable energy. And the list goes on and on.

Considering the very public and high profile decisions being made by these and other leading investment bodies, there should be a flood of investors backing sustainable innovation and clean technologies. Unfortunately, cleantech had a rocky start, wrought with hype-driven peaks and drops that scared away many Wall Street investors. But to echo McKinsey and others, cleantech is no passing fad. To capture the highly profitable opportunities now emerging in this industry, it is important to look beyond just past financial statements. The staying power of the cleantech sector has never been stronger, and the hype of years past has been replaced with mature, profitable, sustainable solutions that are ready to help innovate the core businesses of large industries.

It is important to recognize that some cleantech companies will still fail; not all will make the cut. But such ups and downs are simply part of the normal course of business and indicative of progress and maturity. At its recent Clean Energy Ecosystem Summit, Goldman Sachs cites the success stories of companies like CREE with a 34x market cap today vs. its IPO, SunEdison with a 26x, Tesla with a 14x (compared to Google with 15x or Facebook at 3x), as well as Nest, Solar City, Opower and many others that should be an inspiration to Wall Street.

With financial returns now becoming very real, it is increasingly clear that sustainability initiatives can create enduring profits and business opportunities while answering the call to solve some of the world’s greatest economic and environmental challenges. The time for subsidized cleantech is over as “win-win-win-win” scenarios for innovative companies, industrial giants, investors, and society at large are emerging.

Investing in social media and apps has a much better track record than cleantech in the past decade but should be nearing the end of its attractiveness. While investing in a sustainable and profitable future for the world’s most important resources now looks more appealing than ever.

Wal van Lierop is an energy technology veteran with unique industry insight gained through deep operational experience. He is the President & CEO and co-founder of cleantech venture capital firm Chrysalix EVC, based in Vancouver, Canada.