Monday, October 5, 2009

Two ways to invest in "green"

In the last few weeks I attended several presentations from companies presenting their business plans and experiences as “green businesses”. Two stood out in my mind at the extremes of what’s out there for angel investors to seek.  Since in some cases I signed NDAs I’ll keep all companies confidential but it may not be difficult to deduct their names with a little research and detective work.

Company1Purpose of the presentation: Present a business plan for investment by accredited investors to raise several million dollars
Idea behind the business (as stated in the presentation): Take advantage of the huge amount of government money promoting technological migration to a “greener” world.
Competitive advantage:  Far out patent pending technologies invented by undiscovered brilliant inventors with no industry track record of delivering working products or systems – the power of the outsider to think out of the box.
Business model: promote the patents through associates, consultants and green enthusiasts, license the patents to major industry players to make and market and collect royalties
Secret sauce: patent pending untested technology that must be kept secret from the big competing interests in the industry, therefore little can be disclosed.
Use of funds: Promotional expenses, R&D to prototype and demonstrate the technology, salaries to management and marketing team, filing more patents, pay licensing fees to the inventors (50% of funds raised) for untested technologies.
Take away:  Too good to be true?  Perhaps so judging from the response of several attendees. The technologies presented promise a) cars running on various fuels (including H2) continuously converted on demand from water, b) energy from waste water to feed the utility grid, c) solar plant daytime energy storage for redistribution at night and/or to distant locations at higher prices.  One alone would be a holly grail, but diversification calls for all three and the markets are ripe for it.  Buyers beware.

Company2Purpose of the presentation: Educate entrepreneurs on a “green business” perspective derived from ten years of R&D and product marketing.
Idea: “green” has taken an unfortunate connotation of either fashionably exploitable business angle or expensive luxury that costs businesses a lot.  Both are wrong.
Products:  Water-based, human and environment safe chemical cleaning products for industrial processes, aviation, gun cleaning, and more to come.
Use of funds: N/A – Company2 need none, they are offered more they want to take, the business is profitable and fast growing
Take away:  Company2 has demonstrated, over ten years, that environmental and human safety offer a) profitable markets for the producers and b) can be demonstrated to reduce TCO for the customer that switches from noxious chemicals (the only ones available in the past) to the more worker and environment safe products available today. C) There are great opportunities for entrepreneurs, and their angels, that want to pursue a similar business strategy.
The key to Company2's market penetration was and is to effectively communicate and demonstrate the value proposition to prospective customers who are frequently under great pressure and incentives from legacy suppliers to continue past practices.  It takes time, commitment and tenacity.  The pay off takes time.

So why does this matter?  Because in the current euphoria to go green with our investments and to benefit from the ongoing global technological transition, it is easy to seek an end-run with some magic sauce.  It may be possible but unlikely.  More probably the returns we seek will come from: innovation that creates incremental improvements, education, rigorous analysis of alternatives and serious commitment to a mission.  Technological transitions have never been an overnight affair (see railroads, automotives, semiconductors, internet, telecoms, etc) and angel investors will need now as ever due diligence and patience. More importantly, we should seek credible business models, not promoters' wild promises of world changing magic.

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