Stop your pitching

Recently over at REbound we had yet another experience where we were told that we needed to make a <5 minute pitch. I have written about this idiotic carry-over from the tech world a few times, but I wanted to take this opportunity to dedicate a full post to the topic.

Now, its important early on to define what I mean by pitch because some people call any presentation a pitch, and that is confusing.  To us, a pitch means a short <30min presentation that is given explicitly so that investors (or members of the public unlucky enough to be subjected to it) can make a quick up or down decision on weather they want to hear more. The idea being that these people are so busy being bombarded with other pitches, that you have to make your idea stick with a grand slam 3 minute pitch. 

For the savvy cleantech entrepreneur, pitches are rather benign. It takes a lot of time, but eventually you will make a pitch presentation that is sufficiently impressive to get you to a longer meeting. At REbound we have dedicated a huge amount of time to our pitch and the way people are first introduced to our system. We have learned through many failed attempts, that people just don't want to learn about a technology in a pitch. They want to know what you are replacing, how much better your system is, and how big the market is for the thing you are replacing. It is very clear that a "proper" pitch has almost no technical discussion.

where did the money for basic research go?

If you like free time and available funding to develop technology, this graph should make you very happy! It represents the hourly productive output of each person in the United States. In other words, it shows how good we are at making the food, houses, freezers, toothbrushes and everything else we all need to survive. Looking at that slope we are clearly getting more efficient at making the things we need each year which means we have more time and money to spend developing new technologies. For incremental sustaining research this is absolutely what has happened over the last 60 years. Unfortunately this graph has actually made it more difficult to find funding for basic research. 

Saying yes to mean no

Recently, I had two similar conversations with two similar people that ended up with very different outcomes. Both conversations started the same way: I brought up an idea I had that I wanted feedback on. In both cases I was talking with people smarter then me who had experience I thought would shed light on the idea I was trying to refine. After I explained the basic idea, both people thought the same thing: "that is going to be really really really hard to make work". But the end result of the conversations were very different. In one case, the conversation lasted about 10 minutes and then the subject was courteously changed to something else. In the other case,  the conversation turned into an hour+ discussion about the idea full of new insights, new potential, and eventually a significant improvement on the original idea. 

Why were the outcomes so different if the initial response from folks I was talking to was so similar? Because the first person said no and the other person said yes but meant no and that approach made all the difference.

"but why hasn't it been done before"

In past posts I have talked about a few types of arguments we currently use when developing technologies that I like to call "biased 3rd party arguments". These arguments rely on a non-existant 3rd party to "help" us judge what technologies we should develop and what technologies we should put on the shelf. A perfect example is the devil's advocate. When someone invokes the devils advocate, they are not themselves making an argument against an idea, they are bringing in a 3rd party (the devil's advocate) in order to make an argument they may or may not believe in. Occam's razor is the same way, it invokes a 3rd party to come and make an argument. The problem with these arguments is that they are inherently biased toward the status quo by allowing people who dont have a valid argument to substantiate the claims they are making.

Adding to this list, lets talk about the question "why hasn't this been done before". If you have every worked on a project that is even a little bit different then the status quo, I guarantee someone (probably a manager or investor) has asked you this. Just like Occam's razor and the devil advocate, this argument invokes a 3rd party, All Of Time, to enter the room and pass judgement on your idea and, just like Occam and the devil's advocate, All Of Time is much more biased then we think.

Orders of Magnitude

Like most people in the energy world, I constantly find myself trying to explain numbers with large orders of magnitude. This is an issue when trying to describe any kind of energy technology: “This system has 600kWh of storage” or “This power plant  capacity is 250MW”. Clearly, and unapologetically so, a random person on the street is not going to “get” those values. At first, this looks like a units problem. Joe Smith does not have any idea what a MW is or how it relates to his life.

In the energy industry, the common thing to do is to convert this unit into something that everybody can relate too, like number of homes powered. This is a great first step, but I think it leaves out the other side of the problem: orders of magnitude. Humans, in general, are terrible at grasping and comparing large numbers. So simply converting the number is not enough.

More Brains

We all know the current VC structure used to fund cleantech companies is broken. One major aspect of this is the more rigorous technical challenges of the cleantech world. The VC structure, formed by funding tech companies, places very little emphasis on the idea and, as such, just isn't capable of accurately assessing the technological challenges and potential of cleantech companies.

If this is true, biotech VCs should face the same challenge as biotech startups face at least similar levels of scientific and engineering intricacies. Looking into the status of biotech VC funding, the trend is starkly similar to cleantech. Looking to move their model into new areas, VCs went crazy in the biotech field and now are scaling back as their startups fail to meet returns under the tech paradigm.

How can VCs change their structure to accommodate cleantech and biotech? The best place to start is at the beginning: pick better companies to fund. To do this VCs need to re-prioritize what they look for in startups. But even with a higher priority on the idea VCs will be in a tight spot. When being exposed to  hundreds or even thousands of ideas a year, how can a VC with possibly no technical background make the right call?

The failure of Cleantech VC

For those looking for VC Cleantech funding, these are rather dark days. While sad, there is a reason VCs are jumping the Cleantech ship: the returns over the past 10 years have really sucked really bad. The question is why? Why have VC IRRs dropped from 40 during the days of tech to <10 in the days of Cleantech?

Although nobody knows the right answer, two things are clear: Cleantech does not appear to be capable of producing the explosive returns that tech companies can and something is fundamentally wrong with the process that VCs are using to decide what companies to fund and what companies to reject. Lets look at both these issues.