When Greenstart set up shop in San Francisco in 2011, it was the nation’s first accelerator dedicated to nurturing cleantech startups. Co-founder and managing partner Mitch Lowe said at the time that the organization’s mission was to fill a big gap: He wanted to give alternative energy entrepreneurs access to the same type of training, mentoring, resources, and connections that founders of Internet or mobile companies could get at traditional software accelerators like TechStars or Y Combinator.
But it turned out that wasn’t quite what the companies wanted.
Greenstart announced last week that it’s killing the accelerator program and transforming itself into a seed-stage venture firm focused on the “cleanweb” (more on that term in a moment). A total of 15 firms entered the accelerator, in three batches—Fall 2011, Spring 2012, and Fall 2012—and Lowe says 11 of them have obtained follow-on funding, which isn’t a bad track record. “In general the portfolio is holding up nicely,” he says.
But the companies themselves were never all that interested in the classroom sessions, the group mentoring sessions, the legal advice, and the other elements of Greenstart’s entrepreneurship curriculum, Lowe says. What they were interested in was the help they got designing their actual products and services—and they continued to need that help after the 13-week accelerator session ended. “What we heard loud and clear was that 90 days is not enough,” Lowe says.
The artificial strictures of a traditional accelerator program, with its climactic demo day, after which the companies clear out to make room for the next batch, just weren’t working for Greenstart’s companies. “The best companies are looking for a lifetime partner,” Lowe says. “For both sides to invest a lot of time and energy into getting to know each other, and to have that all disappear, didn’t make sense.”
So from now on, Greenstart will continue to invest $250,000 to $500,000 (through a combination of cash and services) in 10 to 12 seed-stage companies per year. It will also offer extensive help with product and service design, which has been one of its specialties ever since it hired former Frog Design creative director David Merkoski (pictured above, in the green T-shirt, and at left). It just won’t put the companies through a formal training program.
The announcement about the shift came the day after St. Patrick’s Day, which also happened to be Greenstart’s two-year anniversary. Lowe says the company held a “good old Irish wake” to commemorate the change, complete with fiddlers.
The open question now is whether those fiddlers should also have played a dirge for the very notion of cleantech accelerators. In the two years since Greenstart’s founding, only one other cleantech-focused accelerator has come onto the scene—Houston-based Surge. Meanwhile, the Solyndra debacle, which cost private backers more than $1.1 billion, has cast a lingering pall over alternative-energy investing. The whole point of an “accelerator” is to get a startup up to the speed at which it’s ready for venture backing. But the number of venture firms still fearless enough to put money into early stage cleantech companies has dwindled to just a handful. (Greenstart joins a very short list that also includes firms like Braemar Energy, Khosla Ventures, Lux Capital, RockPort Capital, and NEA.)
It’s not that startups trying to change the way we generate, distribute, use, or manage energy don’t need help getting off the ground. It’s just that the Y Combinator-style accelerator—more than 120 of which have popped up across the country, by Xconomy’s last count—may not work as well in the energy business as it does in the world of pure software.
It starts with the companies themselves. In the world of Web, mobile, and cloud software, a group of founders can get into an accelerator with no prior funding and no product—in fact, with little more than an idea scribbled on a napkin. But in the energy world, Greenstart discovered, companies tend to do more homework before they apply for help. And because there are fewer veteran angel investors in the energy sector, these companies have usually found ways to make it through this earliest phase on their own. By the time they apply to join an organization like Greenstart, they need practical product advice more than they need entrepreneurship lessons.
“When we started we were very clearly trying to fill the angel gap in cleantech—after friends-and-family funding but before Series A,” Lowe says. “We found that there were a lot of companies that were beyond that napkin stage. They had bootstrapped, or raised more money from friends and family. Having discussions with companies that had three customers and were trying to make changes to real products was not only more interesting for us, it was a better investment.”
In a way, the companies joining Greenstart were like kids starting kindergarten at age 7. At their age, they didn’t need naps and coloring books; they needed reading and handwriting lessons. So, really, for Greenstart to morph into a hands-on seed-stage venture investor isn’t much of a shift.
Another big factor working against Greenstart’s accelerator was the financial math. To turn an accelerator into a lucrative investing operation, you have to place a lot of bets, in the hope that
