“Cleantech” is the term given to renewable energy innovations such as wind, solar, hydro, etc.. With viable, electric cars that hit the mainstream auto market just prior the housing financial crash, tax credits were put into place to spur investors into putting money down on cleantech ventures. In the recovery after the crash, the U.S. Administration saw that almost $15 Billion was invested as a part of stimulating economic recovery (in areas that could possibly reduce carbon emissions). Many people have heard of the solar subsidies, but it also extended to other energy area types.
As fuel oil prices stayed high the next couple of years, you could see the drop in pricing of capital/supplies, but it wasn’t driven so much from the now well endowed American companies offering lower prices as much as it was from Chinese product dropping the prices. And thus Chinese solar panels that were up toward $7 a watt in cost a decade ago are now almost $1 a watt. Time will tell what the life of the panels ends up being and how much quality reduction lead to possibly part of the price drop. Wind turbine prices have dropped also, yet they are in a different category in that you cannot buy inexpensive parts like panels, and over time ‘build up’ a considerable system. You choose turbines under much more constrained economic considerations which influences who and how much investment needs to be sought out. And hydro dams are even worse, with bonds often having to be utilized for purchasing a ‘unit’.
The question right now is with oil being forecasted at a drop to bring it back down to $20/barrell, what will that do to purchases- and investment for even ‘cleaner’ tech?
How did the cleantech bubble burst?
“The problem with this is that early-stage startups have to work harder to obtain funding, meaning that fewer novel and potentially game-changing technologies are getting past the early stage,” reads the 2017 Brookings report. The report makes a grim forecast for the future of alternative fuels and energy independence in the US should these trends continue. “If the trend continues, breakthrough and game-changing technologies will be underfunded, and the ability of the US economy to break free from the domination of fossil fuels in the next 25-50 years will be reduced.”
Of course, solar power and electric cars are both going strong in the United States today. But the products and the markets look very different than was expected back at the tail end of President Bush’s term, and VC appetite has never recovered.
A cautionary tale
Cleantech has, therefore, become the cautionary tale of venture capital and a handful of food industry stakeholders are thinking about how to avoid letting food tech end up in a similar position.
“Unlike some technologies, where you invent a better phone and then all of a sudden it’s just a better piece of hardware and technology, and everything else becomes obsolete, food’s not gonna work like that. Food is going to take a much slower evolution of change, with step-by-step innovation, and with innovation, you’re going to have an evolution of progress,” Sam Kass, partner at Acre Venture Partners told AgFunderNews earlier this month.
Investment in food tech has grown exponentially in recent years. According to AgFunder’s AgTech Investing report, which includes innovative food such as alternative proteins, online food marketplaces, and e-commerce, novel ingredients, indoor agriculture, as well as farm tech, investment increased 540% between 2011 and 2016. It reached a peak of $4.6 billion in 2015, a bumper year for venture capital across industries, and fell off a little in 2016 to $3.23 billion as VC markets globally muted. In 2016 it represented 2.5% of the $127 billion raised globally in venture capital, according to the VenturePulse report.
“There’s a flood of money coming in and my concern is we need to be very mindful of where VC models work and where they don’t,” says Chris Mallett, corporate vice president of R&D at global agribusiness Cargill.
“In the past, VCs have been able, in areas like IT and pharma, to scale their business rapidly enough to allow them to exit within a decade. In agriculture and food, where supply chains are complex, plants are needed to make products, and adoption of new technology is slow, the evidence from [cleantech] suggests they’re not going to do it successfully without strategic partners.”