I remember attending a conference a few years ago on the “Future of Cleantech,” or something to that effect. Overall, the conference itself was not memorable, but I do remember one vignette, in particular. A panelist (a VC, I think) was asked to define “cleantech” — you know, that thing we’re all supposed to be experts on — and he couldn’t. I remember thinking, “How can you pretend to invest in something you can’t define?”
Today, I give him a bit more credit. It’s a deceptively hard task to define cleantech because it’s such a broad classification used by so many different types of people. For my purpose — investing in cleantech startups — I’ve found the following definition to be useful:
Cleantech is the application of technology to make the way we produce, transform, store, deliver, and consume natural resources more economical, secure, and sustainable.
That’s it! Let me break it down a bit more, point by point:
- “…the application of technology…”: Technology comes in many flavors, but can be generalized broadly into information technology (IT) or physical science. The former is often conceptualized in the OSI model, with software on the top and devices on the bottom. The latter is a bit harder to categorize, although some have tried (notably Vinod Khosla). While the former is about bits and bytes, the latter is about molecules and materials processing.
- “…produce, transform, store, deliver, and consume…”: This is the value chain of cleantech. Take conventional electricity, for instance. We produce coal from the ground by mining it and subsequently combust it in a power plant in order to transform its chemical energy into a useful electromotive force. Electrons are placed onto the grid, where they can be stored in the gravitational potential of a hydroelectric dam. Eventually, these electrons are delivered over transmission and distribution lines into homes and businesses, wherein they are consumed by power-hungry devices. A similar chain exists for oil & gas, water, metals, etc. At each point on this chain, businesses can provide goods and services that form billion dollar markets in and of themselves.
- “…economical, secure, and sustainable.” These are the three mandates of cleantech. At each point in the value chain, your product ideally should be dirt cheap, nationally sourced, and minimally disruptive to the planet’s natural state in the long-term.
To simplify life, I often refer to cleantech’s supply-side and demand-side. The former is concerned with producting more units of “stuff,” while the latter is concerned with producing more useful output per unit of the “stuff” you already have. I tend to avoid the word “efficiency” to describe the demand-side, since it’s often confused with “conservation.” The two are markedly different. Conservation requires sacrifice (which Americans hate), while efficiency requires upgrading to the state-of-the-art (which Americans love).
Here are a few things cleantech is not. Cleantech is not an industry; nor is it a sector. It is a movement, but struggles to be classified as anything else. Industries have common customers, suppliers, sales channels, technologies, etc. While some industries in the cleantech ecosystem share commonalities in one or more of these dimensions, each deserves its own explicit delineation, e.g. solar photovoltaics, demand-side management, etc.
So, why do we need a definition? Isn’t this all academic? Yeah, kinda. But, the nice thing about definitions is that they help you with pattern recognition — the hallmark of any good venture capitalist.
How is this relevant to entrepreneurs? If you don’t know how your VC parses the world of cleantech, you really don’t know how he views you or your business…for better or for worse!
P.S. One of the best sector breakdowns of cleantech may be found here, although it’s admittedly a bit dated now.