It’s been a particularly illuminating week. Any beliefs I had that I was successfully balancing dissertation-writing with on-the-bike fitness came to an abrupt end around four hours into a long ride from Oakland to Mt. Diablo and back. The ride – ostensibly a “five-taco ride,” representing the number of taco-truck tacos wolfed down at the ride’s conclusion – laid bare how soft I had become after three months of thinking and scribbling.
I had come to the Bay Area for meetings and to attend the IIT Madras Clean Energy Panel Discussion in Santa Clara. What I thought would be a small gathering of special interests and a great panel including ex-Rensselaer Polytechnic Institute Professor Om Nalamasu (now Applied Materials VP and Deputy CTO) was basically a standing-room-only affair. The place was packed with technical folks who wanted to apply their mad hardware and software skeels to the twin challenges of energy and climate change. It was a great event, and one that left me hopeful for breakthrough innovation in this domain.
While in the Bay Area I also had a chance to talk to a couple of folks experimenting with different approaches to venture capital investment. The globalization of capital, opportunity, and talent is changing the context in which venture capital firms operate, (click here for a working paper by Martin Kenney, Martin Haemmig, and W. Richard Goe on the subject) and I am curious to see how various aspects of the venture capital ecosystem are experimenting and adapting. One of the challenges of venture investment is navigating the transition from entrepreneurial startup to high-growth firm, e.g. its “professionalization.” Venture capital firms have evolved a series of structural and contractual mechanisms designed to mitigate risk, add value to firms, and help them through this process (where “help” often means swapping out the executive team).
One potential solution to the challenge of professionalization is to do it yourself. A venture capital firm, typically an “active” investor that provides value-add at the level of the board of directors, could choose to become a “super active” investor, taking an active role in the management of the firm. This is the strategy enacted by one venture firm located in the Bay Area. Another way to address the problem is to re-think the notion of the entrepreneur-venture firm matching problem by inventing or finding the business models yourself, and then tap your network to assemble the right team, and hiring additional people at the right time. A second firm has been employing this strategy with some success.
Both cases are interesting experiments, but they also have notable challenges. Both approaches require structural and contractual changes to align incentives appropriately and reduce the ever-present risk of opportunism present in venture investment. Both approaches may struggle to scale, but for a small venture capital firm this may not be a concern. I don’t think either has taken outside money, and I don’t think that either firm would be particularly motivated to do so. However, just like the IIT Clean Energy Panel Discussion, these meetings left me optimistic that the U.S. national innovation system – flexible, adaptable, and filled with bright, motivated individuals – will play a significant role in the transition from hydrocarbons to electrons and carbohydrates.
And how are things in your world? Are you noticing a migration of technical and managerial talent to entrepreneurial opportunities in energy and the environment? What are the factors preventing breakthroughs? Lack of capital? An influx of new talent? A fresh perspective? How much of a difference will technical breakthroughs make compared to, say, changes in public policy or large-scale behavioral change?