Bold Cleantech Investing Predictions for 2015

Undaunted by his past prediction record, investor Rob Day reveals the future of cleantech.

About this time every year, I make predictions about the year to come in the world of cleantech.

These predictions have usually been a good-faith effort, and yet ultimately, many still fall short in terms of accuracy. And this year, I'm expecting a pretty flat year in terms of cleantech venture-capital dollars and deals (which isn't a very interesting prediction, is it?).

So for 2015, it feels like a good time to go out on a limb and make some bold predictions. I embrace my dubious track record for accuracy, and if for some reason any of these predictions do come to pass, well, you heard it here first. After all, we live in interesting times, my friends. So what would make for an interesting 2015 in the world of cleantech entrepreneurship?

1. There will be a big market correction on Wall Street in the first half of the year, followed by a rapid recovery.

That's right, I'm starting out by predicting the fate of the stock market. That's how you know these predictions will be wrong.

The market's reaching new highs, even as there's lots of headline risk out there. No bull market lasts forever. That's why surveyed investors expect a crash before too long. When a selloff starts, it'll get piled into. But U.S. economic indicators seem to still be chugging along, and investors are eternally optimistic about share price growth, so if there's a correction, let's hope it will be sharp but short.

This matters, because it affects cleantech markets in multiple ways, especially when it comes to exits.

2. The IPO window will be very narrow in the first half of 2015, but then will re-open in Q4.

At that point, a backlog of cleantech startups will scramble to get out during that window. I know of more than a couple of such companies that are quietly laying the groundwork for such a move, so many of them will be able to bide their time until the window opens. Let's go ahead and put the over/under on Khosla-backed startups to jump out there in Q4 2015, come hell or high water, at 3.

3. It will be a relatively flat year for U.S. cleantech venture deals and dollars.

Ho hum, we remain in the doldrums. LPs still aren't jumping in to give capital to specialist funds, and generalist VCs  are still mostly happily ignoring all the market growth in cleantech. 

4. It will be a big year for automation. 

One area that will get a lot of interest (and venture dollars) will be robotics as applied to markets we care about. Oh, not "cleantech" deals, oh heaven forfend. These are "robotics" deals, or "internet of things," or whatever label is used to describe the core technology that got the generalist VCs interested. But in areas like transportation, lighting, water, and agriculture, "applied robotics" will be the next big thing. There will be at least one massive driverless-car venture deal. And as a result of all of this hype around automation, worries about "the computers taking over" will grow to an all-time high. Mentions of "Skynet" will peak. 

5. It will be a big year for implementation.

Forget about the VCs for a minute (don't worry, they'll clamor for your attention in a couple of seconds). The real action and returns in these markets are in implementation, especially in financing the installation of distributed (and often, dare we say, "automated"?) assets.

At the midpoint of last year, my firm calculated that at least $4 billion had gone into such distributed asset financing pools over the preceding twelve months in the U.S. alone. Since then, market interest in implementation platforms and funding opportunities and yield has only increased. So in 2015, let's watch as that $4 billion tally grows to $6 billion. That'll be around triple the amount of venture dollars deployed in the space. But we'll still spend most of our time talking about the venture dollars anyway.

6. A group of sovereign wealth funds will "unstealth" a collaborative, multi-billion-dollar direct investment strategy into cleantech.

Quietly, SWFs are shifting to doing more direct investing, as a general trend within private equity. Specifically, multiple SWFs are looking at the fast-growing markets for clean technologies, and are frustrated with 1) the inability of VCs to bring them great returns off of that market growth; and 2) the difficulties of finding direct investment opportunities in the market that are big enough for multi- multi- billion dollar investors to care about (don't try bothering them about your little $30 million Series D, it's not worth their effort). 

But as implementation funding is on the rise, this is opening up a new pathway to solve these two challenges. And because there's safety in numbers, it wouldn't be surprising to see a group of them unveil some kind of collaborative effort to do direct investments into implementation funding pools. In fact, it may already be happening, even if it's underreported. And it would be an important development for the sector.

7. A major buyout firm will purchase a large utility, with the express purpose of establishing a new "utility of the future" business model.

As we've discussed here in the past, current utility business models are leaving a lot of value on the table. They're fighting emerging trends like distributed generation, rather than profiting from them, far too often. And we already know that that disconnect has previously attracted private equity players to look for ways to take advantage, by acquiring a utility and running it for high profitability, leveraging solar and other renewables, energy efficiency, emerging storage options, load automation, etc. 

So it wouldn't be a shock to see that actually happen during the coming year. And it would be a disruptive event for the utility industry. 

8. There will be a big wave of downstream solar consolidation.

We've seen the first stirrings of this already, but now the rush will begin.

With the looming expiration of the ITC in 2017, the big installers/financiers will want to lock in near-term sales pipeline. The most efficient way to do this is to acquire someone else's pipeline. 

Meanwhile, as China dramatically expands its solar installations, China-based PV panel manufacturers need balance-of-system components (especially microcontrollers) to satisfy their internal market demand. The most efficient way to do this is to acquire such BOS component manufacturers, wherever they are around the world. 

These two factors may converge to create a big buying frenzy.

9. Jigar Shah will write, speak, be interviewed, and podcast at least 200 times during the course of 2015.

This one's a slam-dunk! And thank goodness for it -- our sector needs more such vocal champions.

10. It will be a big year for cleantech M&A as corporates start to acquire for competitive reasons, not just option value.

Corporate acquisition activity, relative to corporations' publicly stated interest in these markets, has been underwhelming to date. There has been a lot of bargain shopping, a lot of sniffing around, but few big venture-backed acquisitions have been consummated (outside of Silicon Valley inbreeding, of course). 

But now we see signs of serious moves by players like NRG et al. And there have been market shifts that mean the old, established "competitor set" is being disrupted and broadened. Big companies in energy, water, transportation, etc., are going to have to start placing some big bets on emerging technologies in IT and cleantech, if only to defend themselves against big, energetic competitors from other industries. And the rhetoric from the C-suite is getting even more pointed.

So in the coming year, we may well see the floodgates open. It might not be what was expected a few years back, which can be oversimplified as big chemicals giants paying big bucks for proprietary production technologies. No, it may be more about acquiring IT-driven technologies or new distribution models, with network effects built upon established customer bases. But even still, the big corporates will shift to acquire earlier, and to provide valuations not grounded in the usual EBITDA multiples; rather, there will be a few bigger acquisitions that are valued based upon competitive and strategic factors.

11. Elon Musk will launch a new eponymous fashion line. 

Leveraging the well-earned cult worship currently surrounding him, Elon will announce a new clothing line designed for entrepreneurs, VCs, and those who just want to illustrate that they think boldly.

These pants and shirts and jackets will look awesome, but will only have storage pockets in the front, never the back. They will only work with proprietary undergarments, but those undergarments will last 10x longer than typical underwear, and there will be exciting hints of self-changing underwear technology at some point in the future. And who knows, at the announcement event, Elon might finally "unveil the D."

Such clothing will quickly end the current "hoodie" phase of Silicon Valley fashion. I know I'll be first in line to buy some.

12. At least one major energy storage startup will surprise the industry by announcing bankruptcy (or the "fire sale" equivalent).

Energy storage is where it's at these days, at least in the energy tech world. It's the next big thing. It's also very capital-intensive (see prediction No. 3 above).

As energy storage startups start to bring product to market, they'll compete down prices. Meanwhile, despite all the hype, market adoption will initially be slower than anticipated (it happens every time, folks). And so, sadly, we may well see at least one well-regarded energy storage startup flame out. Again.

13. A revenue-neutral carbon tax will be seriously discussed by Congress -- and won't happen.

Interest in putting a price on carbon is once again on the rise. The idea is garnering serious interest at the state level, and at the federal level among economists and national security advocates. Many see the current fall in gasoline prices as an opportunity to implement an overdue policy that just makes sense, especially if paired with other tax reform and environmental regulatory changes, to make things simpler and more efficient for businesspeople across all industries.

It still won't happen. Washington, D.C. is broken. 

14. One or more high-profile generalist VCs will jump back into these markets, rebranding it along the way.

While the dreaded phrase "cleantech" remains disallowed from any and all LP pitch decks, I see several smart investors out there who are clearly noticing these huge and growing opportunities to disrupt decades-old markets. And they'll find the entrepreneurs who want to do just that. This time, the inevitable talk of "changing the world" won't be framed around "because we have to!", but instead just as an extension of existing market revolutions (in IT, automation, etc.) into these other huge, ossified markets. Out of healthy greed, in other words, not out of fear. And that'll be a great thing. I'm still just curious to hear what new rebranding will be deployed.

15. Seahawks versus Patriots in the Super Bowl!

Sure, why not. I'm terrible at such predictions, so this is probably just wishful thinking, because it would be a lot of fun. If the Seahawks win the Super Bowl, I'll send fresh lobster to my friends at Powerit Solutions. As long as, if it ends up being a Patriots championship, they send me a care package from Salumi. 

 

So there you have it: some developments that may happen in 2015. And if they don't happen to come about during the next twelve months, just remember that like any good venture investor, I'm never wrong, just often early. Best of luck this year, everyone.