Some quick background before two excellent links:

1. “Success in [renewables] depends on scale, or the ability to lower costs by producing large amounts.” (Forbes). Entrepreneurs therefore can’t fund new ventures on internally-generated returns as was more common in the dot-com boom. They require significant outlays of up-front capital before they have a viable business model.


2. Most renewable energy companies are too risky to issue enough debt to satisfy their capital needs. They must, therefore, rely on equity.


3. Venture capital funds a significant portion of the new developments within the renewable energy industry. VC is designed for high-risk, high-payoff investments, a description that fits most renewable energy investments very well.


4. VCs make their returns with exit strategies. The two most popular exit strategies are: a) go public and sell equity on the market, and b) orchestrate a sale to a larger company. Without these two exit strategies, venture capital firms have limited options to generate returns on their initial investment—they are stuck with partial ownership of a company when what they really want is cash.


5. The credit crisis has crippled the IPO market, making it very difficult to take a private firm public without offering shares at a significant discount. The credit crisis also made it very difficult for large firms to take on debt, making it very difficult for such large firms to purchase new ventures. Thus, in one fell swoop the credit crisis hammered VCs exit strategies.


6. Oil prices are pro-cyclical and have therefore declined significantly in recent months.  This hurts the business model for any oil alternative.


7. As a result of all of the above, cleantech VCs are ramping down.

There. You are now qualified to read the following:

• Is The VC Vault Closing for Cleantech?


• Sequoia Capital’s 56 Slide Presentation Of Doom