Friday, October 10, 2008

Inside Clean Technology

Green tech reminiscent of biotech

Those of us with some gray hair remember what it was like when the biotech industry was just getting its legs. The current interest in (or hype about) green tech bears a lot of similarities to those exciting days. Back then, all you had to do to raise money was name your company “gen-something” or “bio-something,” put a capital letter “X” or “Z” in the middle, and venture capitalists with wheelbarrows full of cash were lined up outside your headquarters, which was most likely  a “repurposed” building in Cambridge.

Today, there is a new crop of young, energetic entrepreneurs with green-tech technologies. Although I’m assured they’re new, too, the VCs look the same. The only difference is that in order to get the VCs to line up, you need to name your startup “green-something” or “clean-something.” Ironically, many of these companies are engaged in what we once called “ag-bio” or “industrial biotech”; it’s just a lot sexier to call it green tech now.

We are about to experience a tsunami of commercialization of technologies that will change the way we make power, handle waste and protect our environment. We’re throwing words around the dinner table like “cellulosic” and “fuel cell” and “gasification.” Some of these new technologies are “killer apps” that will fundamentally improve our lives. Venture Beat has reported that more than 80 percent of the world’s $3 billion venture investment in green tech was made in U.S.-based companies in 2007, a whopping 43 percent increase from 2006. But if you’ve been around the block a few times, you’ll see that the fundamental challenges facing the nascent green-tech industry are the same as those faced by biotech entrepreneurs 25 years ago.

The biggest of those challenges is building “A team” management. When biotech was new, there was, of course, no existing industry from which to draw leadership. The most logical place to look for talent was Big Pharma. While most pharma executives were more familiar with medicinal chemistry than recombinant DNA, it was close enough. However, on the more important level of “fit,” the mismatch was pronounced.

As an investor, you want your startup CEO to have prior CEO experience in the industry, multiple commercial successes, a strong technical understanding and proven exit experience, and you want them to be a scratch golfer. For emerging industries, there is no such person. Further, while senior executives in big companies in mature, related industries may be good golfers, it is highly unlikely that they will meet all the other criteria. More importantly, they won’t be familiar with concepts like “burn rate” or making payroll. Startups don’t have rooms full of attorneys or human resources departments. They don’t have finance, marketing, sales or any other departments. Senior executives in big companies are accustomed to having a vast network supporting them as they execute from the wheelhouse.

While we shouldn’t underestimate the challenge of getting small, all is not lost. Lots of big companies have “intrapreneurial” programs, and someone has to manage them. A key part of those efforts is to behave as though one were at the helm of a startup with all the attendant challenges. They need to identify internal funding, recruit staff, find space, manage intellectual property — all the things a startup CEO would be faced with.

These big company executives have other desirable characteristics. Big companies may do deals with small companies that are often critical to the success of an internal program. Big companies that do this well spend lots of effort “getting into the head” of the startup, and big company executives who have been through this process understand startups and can have a much easier transition into a startup environment.

For the current green-tech craze, these challenges are the same as they were when the biotech industry was taking shape, but the landscape has changed in two key ways. First, biotech is now a much more mature industry with senior executives who grew up there. This is good news for green-tech companies in the “bio-“ space — biofuels and bioremediation, for example. Second, some big companies have seasoned executives who have looked at clean technologies strategically. They can be extremely valuable to startups because, critically important, they can see where the startup needs to go. Setting this vision while rolling up the sleeves is just what the doctor ordered.

The challenge, of course, is finding those needles in the haystack.

 

Christopher M. Palatucci is the life sciences practice leader at Polachi, an executive search firm in Framingham. He can be reached at 508-650-9993.