Y Combinator’s new 8.25 million USD fund shows that it’s funding model is definitely successful, but the question is can it transfer to other industries?
While Y Combinator may be focused on the web (and by we include mobile as the lines are ever more blurry), this new 8.25M fund shows that Y Combinator’s new approach to investment shows merit. The question however is, can those similar practices be transferable to other industries?
Typically an investment of up to $20k ($5,000 + $5,000 per founder) isn’t exactly big bucks and typically won’t provide sufficient capital to hire a team, program whatever, and devise a strong media campaign. What it does is give the founders of said startup enough cash to live for three months and develop the idea while having their hands held by the incubator.
Specialized business training on the go, or more likely during the building stages? Absolutely, look at the successful entrants, all programmers with little to no business experience, but now with successful companies, Reddit, ClickPass, Zenter.
However, this is the web, where businesses are easily and quickly scalable, but how about if we were to apply the same model to clean tech, could a micro investment also work?
Aside from what is undoubtedly the higher cost of a prototype, the model should be transferrable. Why? Because the recipe is the same.
Inexperienced Engineer in Business + Good Scalable Idea + Capable Mentoring = Higher probability of success
The only difference then is, how much money will a non-web company need, and what is the exit?
First off, we are definitely looking at larger figures of 50-100k+ per clean tech project total seed investment – longer lead times, longer, development times, and longer to market times. Not to mention of course that sales and profit generating activities typically will require more effort but should those same hand holding techniques be applied to a different tech sector we could very well see a paradigm shift in the way we go from prototype to market, and more so how early stage non web companies get financed.
Would be interesting to see if anyone will pick up on such a model in the coming 3 years.
We attended the BiCE summit this week at ESADE and overall we would say the event was a successful one, some interesting talks, some interesting companies, one that we’ll be covering sooner than later in our Startup Saturday series even.
However what we believe was the most interesting part of the whole thing was the panel of Angel, VC (venture capital), and PE (private equity) investors into the clean tech space, as well as a discussion on the development of clean tech in the CEE region. The low point – a long winded forum of government officials talking about sustainability and efficiency and elaborating on the need to create overly complex programmes to work together with the private sector and banks. So let’s start there –
Government and Clean Tech
Clearly one of the more important roles if any of government is to set policy, and provide incentives for enterprise in it’s own market. This is all good and well, and in our most humble of opinions this is simply something that needs to be done via tax abatement. After all, the stakeholder mentality is undoubtedly focused on the bottom line.
So what’s the problem? There should be none, government should have instituted tax abatement programmes for clean-tech initiatives a long time ago, the same for energy efficiency etc… etc… not only to offset the cost of installation, but also to create incentives for non eco-knowledgeable business to implement eco-friendly methodologies and practices into its day-to-day operations.
But @ BiCE, these governmental entities failed at promoting just that, instead they discusses large bogged down in bureaucracy initiatives, that lacked any sort of clear vision. Notwithstanding what really stood out – in terms of the negative – were comments made by various government individuals that “each case is different” and that a “different programme needs to be established for different companies”. Socialist, sure, but worse that that it screams of 1. Inefficiency, and 2. Higher Taxes. After all someone’s got to pay for all these new programmes.
What’s the solution, simple, Ockham’s Razor – entities should not be multiplied unnecessarily. Create an initiative that fosters the implementation of Clean Tech and Enviro-Friendly practices, give tax breaks to those who participate in the programme, and that’s pretty much all you need.
Clean Tech & Energy in the CEE
Elena Yordanova an investor in the clean tech area with Astra Capital spoke on this topic and although it was brief, it was also very informative. The region as a whole has huge potential for clean tech implementation, specifically in the area of en energy generation.
The SEE is rich in sunshine, there are various opportunities for hydroelectric as well as the north, i.e. Poland, and the Baltics can capitalize on coastal wind farms. Barriers to entry are still fairly low, and the region has massive growth potential across the board, however certain markets such as Romania already have met 2020 targets and over 30{abb65e2b6815f549a727af2ea9f3a377a727ddc064972a198a74f88a6b766686} of their energy production coming from renewable sources.
Investment Outlook for Clean Tech
This is a tricky one, as we all well know – investors want a high margin quick return. Clean tech companies however are not suited for this model, time to market may often be ten years or more, and investments are typically very capital intensive.
At the same time, the industry or sector is as a whole very new, and there is very little if any PE activity within the clean-tech space.The good news however is that you’re starting to see VC’s grouping their funds together for truly large scale capital investments into new technologies that otherwise without this money could not be realized. This is a good thing, the bad thing is the lack to BA’s in the field and their reluctance to throw money at clean tech startups – after all, there needs to be a call to a social cause when investing 500k-2m and expecting generally lower returns over a longer period of time.
