Renewable energy is growing and getting cheaper. But the broader sector of clean tech is concentrating in a few metros, just as venture capital is slowing down.
The region’s technology sectors are well known: Aerospace, software, ecommerce, biotech/biomedical and cloud computing. Boeing’s next 777 may seed one in composites. But clean tech, which leaders including Gov. Jay Inslee, have staked out as a promising new set of advanced industries, is attracting venture capital more slowly.
According to a new report from the Brookings Institution, clean tech (or “cleantech,” as it’s called there) is concentrating in only a few metropolitan areas. These regions also are seeing the major share in a declining rate of early-stage financing, which is essential to innovation. The report reads in part:
“Rejuvenating energy innovation will also require ensuring the availability of plentiful capital to help commercialize breakthrough ‘cleantech,’ whether these innovations are in the form of hyper-efficient solar modules, new kinds of batteries, or cheaper and safer nuclear. And yet today, the nation faces a significant crisis in cleantech innovation. Not only has cleantech patenting slowed down, but there are indications that the early-stage financing system critical to helping innovative new energy companies grow is not working well either.”
The top metros for clean-tech VC are San Francisco, Silicon Valley, Boston, Los Angeles, Houston, San Diego, Austin, New York City, Washington, D.C., and Chicago.
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The Washington Department of Commerce reports that the state’s clean-tech footprint is comprised of more than 100 companies. They hold 195 patents in 12 industrial sectors and employ some 90,000 people. (The state’s total employment count is 3.4 million people).
Even so, growth is going to be harder with the decline in capital investment. Nationwide, VC funding rose sharply before the Great Recession. Since then, it has been middling — and it has shifted to late-stage deals, making it harder for innovative newcomers to get going. Last year, total VC investment was about $5 billion.
Mark Muro, a Brookings senior fellow, said “Seattle is looking pretty good” compared to all metropolitan areas in clean-tech VC investments. But we have a long way to catch up with the leaders. “The data show that Seattle remains a very solid fast-follower, with a decent degree of diversification. The question there, and for everywhere, is what happens next, as policy uncertainty spikes and VC pulls back to its cherished late-stage, software-oriented priorities.”
According to Brookings, Seattle ranked No. 12 nationally in total investment and No. 14 in total investment from 2011 to 2016. Investment totaled $497 million. Most was in transportation, advanced green materials and energy efficiency.
The new regime in D.C. is a challenge for everyone: emphasizing fossil fuels, denying science, defunding research. That will be a further headwind that likely freezes the winners in place.
Tom Ranken, president of the Cleantech Alliance, based in Seattle and with members in nine states and provinces, said a focus on venture capital can be overemphasized. “It’s not important for the majority of companies, only about 5 percent are venture funded.”
Capital comes from a variety of sources, from traditional bank lending to strategic partnerships with larger companies, including acquisitions. For example, last year Seattle startup 1Energy Systems was acquired by the South Korean conglomerate Doosan.
“Angel (funding) groups are very robust here,” Ranken said. “A lot of companies are doing it the old-fashioned way, getting out and offering their services quickly. It’s a very different field compared with software. A lot of jobs in cleantech are internal in existing companies.”
Today’s Econ Haiku:
Here’s some secrets, Vlad
Hope I passed my job review