Wednesday, October 29, 2008

Venture Capital and "Green" Investment

Will the current banking chaos reduce innovation in the green tech sector such as solar panels and hydrogen cars? Is there a new green technology that would have been developed sooner had the current financial crisis not taken place? Some in California are making claims that there are new startup firms with positive expected PDV of their investments but these firms face high fixed costs for entering the field and have no ability to borrow. If these new firms are liquidity constrained, then will economic efficiency and environmental progress suffer due to the Wall Street crisis? It would be a shame if a guy had a great idea for improving energy efficiency and reducing GHG emissions but couldn't make it happen because he has no capital to finance his ideas.

An obvious substitute for borrowing from banks is to sell a piece of your firm to a venture capitalist. The usual issues will arise here concerning valuing the risky asset and agreeing on a price. I have read that Google has $14 billion of cash lying around. It would interest me if the smart guys there are thinking hard about bundling a bunch of these firms and purchasing them or purchasing a fraction of these startups. It would also interest me if Google's gurus are any good at "picking winners". They have a great search engine but does success there translate into success on strategies to mitigate GHG? Do you believe in the 1 factor model of ability?

It is an interesting question how you evaluate the future profitability of a startup but afterall Google was once a startup. Perhaps if UCLA and Stanford paid their faculty more, they would have more after tax income to give to invest in their star graduate students' new firms?

Don't we faculty have the best information about our PHD students concerning their talent and non-cognitive skills at becoming the next Google?

So Hank Paulson should give the West Coast faculty and perhaps MIT's faculty the $100 billion to invest and we would finance the next generation of green firms.

3 comments :

Ron Robins said...

Interesting thoughts!

You might be interested in looking at my popular green-ethical investing website. It also covers the latest related global news and research on the subject too. It's at www.investingforthesoul.com


Best wishes, Ron Robins

jerng said...

I'm sure there are academically validated theories on how to pick stocks, startup stocks in particular, however I think it does boil down to a lot of hands-on work, and numerous combinatorial details which can only be screened on the ground, at the deal level. The only thing I can think of which would benefit the venture-capital industry in aggregate, are tools which increase the amount of market information, such as who is dealing on what, where, and for how much; contrapositively, any tools assist startups in positioning themselves amidst other startups around the globe should be welcome for exactly the same reasons - faster information transfer, and better information, results in faster business and better business for everyone in the long run. Haha.

Sabrina Garza said...

Having a venture in green investment is a good start to restore the balance of nature. Green projects are intended to protect both mankind and environment from the harmful effect of global warming. This scheme could serve as an alternative tool for funding projects and programs that other mechanisms are not able to deliver.

Sabrina Garza