Daniel Englander
Escaping the Risk Aversion Vacuum June 19, 2008 at 8:42 AM
I’m out in San Francisco this week. As someone who grew up with the Internet, the Bay Area has always held some sort of mystical quality. I remember reading about how Yahoo (and later, Google) was to able to do search, and wondering whether the spiders were kept in big cages, or if they were allowed to roam around Silicon Valley eating cows and knocking over power lines. In my mind this was the place where cool stuff happened, though it wasn’t until I came out here for the first time in college that I saw the Valley was less like a futuristic Lego land and more like the bland office parks my I-banker friends work in in Northern New Jersey. Except with better sushi. I knew then I had spent far too much time reading Douglas Coupland.
The Internet is, to a large extent, intangible. So that feeling of “happening” comes from the flashy logos on office parks, the occasional McLaren F1 you see cruising through SoMa, or maybe an overheard conversation. I was over at the Googleplex the other day, for example, and if you’ve never heard of Google and didn’t know what they did, you couldn’t be faulted for thinking they were a plushy detention camp for under-25s, or one of those “future institutes” your rich friends are always going to for mind-clearing. One thing you would notice, however, are their solar panels. In fact, it seems like solar panels are all over the Bay Area - on houses, at highway maintenance stations, and on commercial buildings. Over the course of 30 minutes while walking down University Ave. in Palo Alto on Tuesday I saw two Solar City trucks, seven solar installations, and at least three (heard & saw) coffee shop business meetings involving a greentech business idea. Even in some of the meetings I’ve done this week at tech companies and VC firms, it’s easy to get the sense that the greentech industry here is something tangible.
Boston, by contrast, is the land of speaking in abstractions about greentech. So much energy there is put into declaring the vibrancy of the New England greentech cluster or trumpeting the winner of the latest MIT energy competition, with few obvious results. By way of comparison, I visited one VC this week who’s building a portfolio that’s heavy on capital efficient greentech - software, DR, materials, etc. He’s also building a LEED platinum house with one of the highest ratings in the country, complete with electric vehicles, green materials, solar panels, etc. According this VC, a lot of the difference between the Bay Area and New England is attributable to risk acceptance. Both places have world class researchers and universities, both places have government backing - though California’s and SF’s approach to greentech is possibly more supportive, and both places have traditions of being technology leaders. But, at least in terms of venture investing, the Bay Area has a leg up in its approach to and acceptance of risky technologies.
Perhaps this is unsurprising given that Boston prides itself on being the center of the one of the first tech booms in the New World - the great salted cod rush of 1675. One example the VC gave me was EnerNOC. EnerNOC was started at Dartmouth in the years when everyone thought Demand Response was just a fancy name for Marco Polo. After getting passed on by a number of Boston VCs Tim Healy came out to San Francisco and got funded. I get the sense that this has happened a few other times. The point is, according to this VC, is that New England’s risk aversion will limit its success in the greentech game, and no amount of good will and government involvement in early stage research and entrepreneurship will be able to solve that. A good first step, I think, would be encouraging Deval Patrick to get behind a strong subsidy program aimed at creating a consumer market for greentech products. And this can move beyond solar panels. CARB’s zero-emissions vehicles mandates, however emasculated they have become, are still encouraging the promotion and commercialization of ZEVs in Massachusetts. Several European countries offer subsidies in the thousands of Euros for driving an EV. Utilities re-regulation in Massachusetts is, in my mind, the best thing the state can do to jumpstart the industry.
Still, the challenge of shedding risk aversion remains. And it is a daunting one that goes to the heart of whether the Boston VC community can fundamentally rethink its investment approach. This will go a long way toward making the greentech industry in Massachusetts seem tangible, instead of seeming like the vacuum I sometimes feel it is.
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Few things: EnerNOC did actually locate here and create jobs, so where they got the money probably isn’t as big a deal as where they pay their taxes, so they should be in the New England success column in this debate. Second, I have the sense VCs get beat up here about being risk averse too much, especially in greentech. In this market, it is very very wise to be cautious, so risk aversion may end up being a positive in the long run if we manage to create some real world-class green companies instead of lots of me-too startups.
But the point about our state not doing enough to create a market is a good one. The state giving money for R&D or entrepreneurship or whatever really misses the lessons of California and Germany. The best way to create a local market is not to focus on investing in people or technology but to invest in demand. Germany did, and they have over 250,000 solar jobs now in a country that has little sun to speak of. California has long subsidized all manner of alternative energy and conservation, and therefore leads the nation in green jobs and greentech wealth. If Massachusetts and other New England states continue to talk more about investing in innovation instead of investing in demand, my guess is that we will create a great class of engineers and entrepreneurs that will take their ideas and bring them to a place where the demand is hottest.
Yours truly, and your greenTREKmedia team captain,
Scott