A new model of venture capital investing is emerging in the clean tech sector, moving away from subsidies and traditional investor exit strategies to a focus on intellectual property value and partnerships.
“It is the case that the venture model of entering and exiting in two to three years doesn’t work in [clean tech] and it never has,” Flagship Ventures CEO and Managing Partner Noubar Afeyan told Breaking Energy recently. “Investors were looking for a formulaic path to making money, but it is IP value and partnerships that both validates the underlying business and provides a liquidity proxy for a possible exit.”
Cambridge, Massachusetts-based Flagship recently closed its fourth fund, raising $270 million and exceeding its original $250 million goal. The company focuses on a combination of early-stage investment and launching new companies, Afeyan says, and works closely with researchers to commercialize innovation.
Flagship invests in both health care and sustainability, which includes energy clean tech. The two fields often face similar early-stage research and development issues, although the end markets are extremely different, Afeyan said.
Energy cannot be viewed in isolation by researchers or investors, Afeyan argued, as water and agriculture issues and scientific developments can impact existing energy markets or lead to energy innovation. Flagship is “very active” in the water industry, and is working on major emerging technology applications for water used in hydraulic fracturing, or fracking, by the natural gas industry.
“Energy, water, nutrition are all constrained-resource opportunities,” Afeyan said. “It is a very exciting convergence area.”
As the firm’s investments rely on basic research often underwritten by the federal government, Afeyan defended the traditional role of the US government in basic research but said funding applied translation and commercialization had been a step too far. “If you start with scientific breakthroughs and go to markets, that’s a hard path to shortcut with incentives or money,” Afeyan said.
For a video of Assistant Secretary for Energy David Sandalow discussing the role of the federal government in basic research on Breaking Energy, click here.