Why it’s really hard to pitch a green energy startup

Three Stanford graduates figured out a way to turn carbon dioxide into fuel.

A few years have passed, and their idea has since become a company — Opus 12 — complete with a prototype, funding and a plan for a first commercial unit.

Opus 12 is one of the lucky ones. Clean energy startups face challenges that software startups don’t.

Most entrepreneurs in Silicon Valley need minimal supplies — often they can build their products on their computers. But those who try to bring a science-based concept to market need laboratories with expensive equipment. They need more time to build prototypes, and more time to figure out if those prototypes will work or attract customers.

“Bridging the gap between the idea and the prototype — that’s the really, really hard part,” Opus 12 co-founder and CEO Nicholas Flanders said.

It’s easy to see why an investor would walk away from such risks. But it wasn’t always that difficult for clean energy startups to attract private capital.

What went wrong

The National Venture Capital Association found that in 2006, U.S. venture capital firms invested roughly $1.7 billion in clean tech. The next year, that figure spiked to $2.9 billion, and it reached $4.2 billion in 2008. Investments dipped in following years, and peaked in 2011 at $4.3 billion.

But by 2015, the figure had fallen to $1.3 billion.

An MIT working paper published in 2016 argues that conditions in the early aughts — clean energy legislation, the rising cost of gas, an increasing awareness of climate change thanks to Al Gore’s “An Inconvenient Truth,” and Tesla’s arrival on the market — made clean energy seem like a win for investors.

But many of those bets failed. The report authors found that “venture capital firms spent over $25 billion funding clean energy technology startups from 2006 to 2011 and lost over half their money.” Clean energy companies tied up capital and were expensive to scale, the authors say.

The most notorious flop was solar panel maker Solyndra, which declared bankruptcy in 2011 after borrowing $527 million with the government as its loan guarantor. Solyndra’s failure cost private investors nearly $1 billion, and cast doubt on other solar panel companies that had government backing.

A new way

To solve the problem, big investors and the U.S. government are working together to back new solutions to the problem.

For example, Bill Gates launched a multi-billion dollar clean energy fund in 2015 called the Breakthrough Energy Coalition. The mission: private companies develop clean energy “breakthroughs,” and the government invests in the research.

Opus 12 owes a lot to one government initiative, Cyclotron Road, an incubation program at Lawrence Berkeley National Laboratory that is backed by the Department of Energy.

“It’s been pretty fundamental to us being able to get follow on funding,” Flanders said.

Cyclotron Road offers its cohorts the support they need to attract funding: A two-year fellowship that includes a living stipend and health insurance, access to the lab’s facilities, initial research funding and business mentorship. The program launched in 2014 and has supported two fellowship cohorts so far.

Now, most of Opus 12’s funding comes from the government and philanthropic organizations. But the company expects more private money to start pouring in as it prepares to release a product.

Cyclotron Road is a competitive program — co-founder Sebastien Lounis says they get between 100 and 150 applications per year, and accept 5-10 of those.

If applicants don’t get in, they do things the hard way: Rent lab space themselves, apply to grants and try to figure out how to pitch their products themselves. It’s not impossible, but it’s slow — and, in Flanders’ opinion, risky. In his words, “society might lose out on those potentially game-changing technologies.”

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