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Monday, October 11, 2010

Valley of Death Alive and Well for Clean Tech Firms

Originally Published at the Breakthrough Institute

More and more clean energy businesses are becoming trapped in the clean energy technology "Valley of Death"--the research phase after proof of concept but before commercial production--where companies often need continued funding to survive. Unfortunately, as a result of the bad economy and a lack of venture funding, "that valley is getting even deadlier," according to a new story in the San Francisco Chronicle:

Most [VC Fims] placed their bets with the expectation that they would cash out in five to seven years. In the new normal, that horizon is getting pushed out.

It has long been recognized that promising clean tech firms need more patient capital to navigate the Valley of Death. New federal institutions have been proposed to address this issue, but such proposals are languishing in Congress as the clock runs out on the Congressional calendar. One such proposal, championed by Senator Jeff Bingaman (D-NM), is the Clean Energy Deployment Administration (CEDA). CEDA would utilize a suite of flexible credit enhancement tools, including loan guarantees, securitization, and insurance, that would reduce risk for investors in cutting-edge clean energy technologies.

There is also a greater recognition that the Department of Defense can and should play a critical role in financing the advanced demonstration and early commercialization of promising clean energy technologies, particularly those with dual-use military applications.

Ultimately, a much greater role for federal investment is required, as even private sector financiers and investment bankers have come to recognize:

"Venture capital has been very good at driving technology," says [Goldman Sachs clean energy investment analyst] Bolster. But even VCs don't have pockets deep enough to pay for scaling up these capital-intensive businesses. "When it comes time to write that $500 million to $1 billion check, nobody's home."

With critical stimulus investments soon expiring, the success of the nation's clean energy entrepreneurs will depend on whether Congressional leaders can cut through the anti-government ideology threatening to take root in Washington and provide the investments necessary to build a robust clean energy economy.

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