Rate of Change

In meeting with a cleantech entrepreneur recently I was reminded of a fantastic reason to be bullish on the long-term opportunities for innovation in the space. This repeat entrepreneur had built a formidable set of successes in the semiconductor industry. However, he explained he was originally trained as a mechanical engineer and had begun his career tinkering with much larger machines than semiconductors. (Deci-tech, perhaps?) But in the late seventies he decided to switch fields because, as he put it, "the rate of change in semiconductors was so much higher than in any other field."

Interestingly -- and in a very good sign for the future of cleantech innovation and investing -- this entrepreneur was now working on a new project in energy-efficient transportation. Innovation (and innovation-based investing) can only thrive where the potential rate of change is high enough to allow new companies to overcome all the inherent disadvantages of being new companies and still succeed in the marketplace. But potential rate of change is only one part of the equation. Creative, passionate entrepreneurs must be attracted to the field in order to realize that potential and actually drive the changes.

In just the past few weeks I have met with public policy wonks, disk drive manufacturing experts, mathematicians, anti-fraud software entrepreneurs, innumerable successful semiconductor executives and a veritable rocket scientist who have all been attracted to the new rate of change in energy and cleantech and who have decided to commit the next phase of their careers to this emerging trend.

I certainly understand that changing gears like this is never easy, regardless of how much prior success you bring with you. So not all of these entrepreneurs will succeed, and certainly not in their first venture. But the new rate of change in cleantech is attracting ever more brilliant, passionate individuals to the space, and so the next generation of seasoned cleantech entrepreneurs is forming as we speak. There are still several questions to ask before becoming comfortable that cleantech will provide fertile ground for venture investing for years to come: Is demand stable and self-sustaining? Why bother since the nameplate rate of change can never be as high as during the semiconductor boom, and the ROIC can never be as high for the best consumer internet companies? (Some of these questions I hope to address in future posts.)

But committed, passionate entrepreneurs are the sine qua non of disruptive industries. And the rate at which such individuals are currently being attracted to cleantech is the change that may well lay the foundation for many, many years of promising investment opportunities. It may be wise to bet against the wave of Harvard MBA's, but I wouldn't bet against the trickle-turning-to-a-flow of successful entrepreneurs working to boost the rate of change in cleantech.

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