Q&A: A venture capitalist’s view on the clean-tech economy

Nancy Pfund and the Silicon Valley venture capital firm she founded take a different approach than many of her peers. When she and her colleagues decide whether to invest in a firm, they look not only at the underlying market conditions, but whether the company might change the world in a positive way.

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Nancy Pfund is managing partner of DBL Venture Partners. Courtesy photo.

As managing partner of DBL Venture Partners in San Francisco, Pfund helped fund such groundbreaking companies as SolarCity, Tesla, SpaceX and Pandora. The firm is especially interested in clean technology and sustainable products and services, ranging from investments in solar supply-chain producers to storage companies.

The Great Plains Institute is hosting Pfund at its Energy Innovation Celebration Thursday in Minneapolis. Her talk will explore the evolution of clean energy and how she says we’re heading for “an inflection point” in greater demand for less-polluting power sources.

She recently spoke with Midwest Energy News about “impact investing” and the role venture capitalists and their clients can play in driving a clean energy economy.

Midwest Energy News: What is impact investing?

Pfund: It is a kind of investment that recognizes new business formation and investment that can have profound social impact. It harnesses the power of investment to make positive social impact, as well as returns for its investors.

When did you start doing it?

At J.P. Morgan 13 years ago, and we were really early. No one called it impact investing back then. Our name DBL stands for “double bottom line,” and that’s another way of saying it. You have a first bottom line to make good returns for your investors — like any venture capitalist does. But then you have a second bottom line to drive social, economic and environmental improvements in sectors and regions you invest in.

Some argue investing in good causes is a lost cause. What’s your reply?

We’ve invested in iconic leaders in sustainability, health and nutrition, and digital music. We have proof points that it should be done more. You don’t have to sacrifice financial return if you introduce a social dimension to your approach. We think Tesla, SolarCity and other sustainable investments lift the world from the 20th-century, fossilized, centralized approach to one that is much more attuned to 21st-century needs.

Energy is highly regulated. Is it harder to find innovators in it?

Yes, but so are other industries. Energy does have a heavy regulatory role at the federal and, unlike other fields, at the state level. It’s regulations times 50. Early in the life of a company you have to devote resources to (regulations). It’s not harder, it’s different. But when you’re tackling big problems the government is usually involved somehow because they want those problems solved, too, so it gives you a bigger platform and more visibility.

Do energy-related firms take longer than, say, tech companies to take off?

Some do, but biotech companies often take years, too, to get through clinical trials. We invested in Tesla in 2006 and it went public in 2010. That’s only four years. We’ve had returns in 21 months on some investments. Storage investments are taking longer because it’s hard. You don’t wake up one morning and have a functional battery at a competitive cost.

Do you see a lot of obvious greenwashing proposals?

We meet people with a can-I-change-the-world mentality, so we don’t see that as much. They believe their technology, services and products have merit and will make a big splash. They’re kind of the true believers, though they may be overly optimistic about how much they’ll move the needle. But you have to be an optimist in order to be an entrepreneur.

You mentioned in a prior interview that policy shapes behavioral change. How so?

If you have a policy that rewards people for buying solar panels or electric cars, or for conserving energy, and they can see a concrete financial benefit in their lives, that will affect their behavior. That’s what is underpinning this transition — there’s not a sacrifice anymore to do things. The flip side of the aggravation of regulation is the beauty of it. With one fell swoop you can turn the ship around on a large scale.

But businesses complain about regulation and market subsidies all the time. You looked at this in a 2011 paper you co-authored. What’s your counter-argument?

I’m not against subsidies, I’m against subsidies for businesses that are a hundred years old that are earning huge profits and not producing products that are sustainable. We need to level the playing field with a price on carbon, a tax on carbon or create incentives.

What kind of entrepreneurs get into the energy field?

They have to have a lot of grit, they have to be slightly off-balance in recognizing they’re going to have to work their butts off in spite of incumbents and the traditional ways of doing things.

In this field they’ve got to have a passion for change, and if you’re not committed to a vision where we don’t destroy our planet in the process of generating our energy you’re not going to be successful because there are just too many obstacles in your path.

Who are the new cool kids in clean energy technology?

Storage is at where solar was 10 years ago. It’s just beginning. The costs are coming down, the technologies have been vetted, and people understand the pivotal role storage can play in greening the grid in a cost-effective and reliable way. Storage is a huge opportunity.

Big data is also infusing more innovation into our electricity system, but we’ll have to unlock the heavy grip incumbent utilities have on all of the data out there. That will be the challenge.

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