One of the easiest places to look for new ideas in venture capital is all the technologies of the past 30 or 40 years that have failed to produce a financial return — but which have huge potential to be realized in the future, says Bruce Gibney, partner at the Founder’s Fund.

Bruce Gibney: I think one of the easiest places to look for new ideas in venture capital is all the technologies of the past 30 or 40 years that have, for whatever reason, failed to produce a financial return but for which there is no technological reason why they can't work.  

Energy remains one of sort of the great open questions in venture capital.  Clean tech has received an enormous amount of funding over the past five or six years.  There’s the efficiency side of things, which has worked quite well -- so sort of grid management, cooling, etcetera.  The generation side has worked out very badly, and I think the reason why is fundamentally the business model for the generation side is totally off.  

So the curious thing about -- on the generation side -- about clean technology is that the business models are the most perverse in any part of the startup landscape.  So, for example, if I were a handset manufacturer and I wanted to introduce a competitor to the iPhone, I would never introduce something that was 80 percent as powerful, had 70 percent the features and cost 120 percent the price, and say to the consumer, “Well, some combination of government subsidies and good feelings and unicorns and rainbows will make you want to buy the product.”  The correct thing to do is to say, “I will be as good as the market leader and slightly cheaper.” 

So if I ever encountered a company that was able to produce energy as cheaply as coal produces energy, and cleanly, then I would be interested in investing in it.  If the business model is fundamentally that we're fairly inefficient but we're relying on subsidies and people's goodwill to make up the gap, that's a very fraught proposition, and I think that's fundamentally why clean tech investing on the generation side has done extremely poorly.

And I'll add one sort of further thing: I think it's socially unhelpful for people to invest in these sorts of companies because allocating capital to companies that are not trying to solve real problems diverts talent and resources away from companies that are trying to solve problems in a genuine fashion.  So, if you're willing to pay an engineer a fairly large amount of money to work on a subsidy-driven, fundamentally uneconomical generation technology, what you've done is you've stolen that engineer from a company that could actually produce a viable alternative.  

Directed / Produced by
Jonathan Fowler & Elizabeth Rodd