Energy Entrepreneurship in the 21st Century: Takeaways from SEC’s E360 panel
On November 7, 2018, the Stanford Energy Club (SEC) hosted its quarterly Energy 360 panel, this time with the theme of “Sustainable Entrepreneurship”. The panel explored various aspects of two distinct but interrelated definitions of sustainable entrepreneurship. The term ‘sustainable entrepreneurship’ is often interpreted as entrepreneurship in the field of sustainable energy. However, the term can also signify entrepreneurship that is itself sustainable in nature and remains viable over a period of time by building business models that create long term value and impact. The panel featured several experts in energy entrepreneurship, including Wade Bitaraf, founder and director of the Energy and Sustainability Initiative at Plug and Play Technology Center, Lidiya Dervisheva, investor at G2VP, Beth Zotter, technology economist at Cyclotron Road, and Jack Norbek, co-founder of Fervo Energy. The panel was moderated by Austin Sendek, Ph.D. student in the Stanford Applied Physics Department and Founder and CEO at AIONICS.
The panel began with a basic question - when is entrepreneurship the right way to solve challenges in energy? The entrepreneurs and investor communities have both learnt some difficult lessons from failures in the first wave of clean tech investment. One of the lessons from that first wave is that the right time to be an entrepreneur in the energy field is often at the stage where the venture has a technical risk, but not a business risk. Simply put, cleantech innovations have to be proven in the market and be able to make money. In order to make this happen, entrepreneurs often capitalize on innovation in one area that offers a solution to an existing need in another area. This is especially true for late stage investors who look for companies with proven technologies that are seeking capital to scale up and reach new geographies and customers.
So, what do investors look for in an energy entrepreneur’s pitch deck? An impactful solution, an economically viable product and excellent team dynamics are crucial to a venture’s long-term viability. Often, the first red flag from an investor’s perspective is when a startup adopts an opportunistic approach to business without demonstrating genuine passion for creating an impactful solution that works. A clear path to commercialization and a strong articulation of the target markets and customers are also critical to entrepreneurial success, as is a thorough understanding of the unit economics needed to achieve a viable product or service. In simple terms, unit economics is the revenue minus costs associated with selling per product unit. At the same time, investors look for a team with the right balance of expertise in business, technology and operations. Beyond the core team, entrepreneurs would do well to invest time and effort in cultivating an external advisory board that can help build a robust knowledge base of the policy, politics and regulation relevant to their venture.
Beyond product economics and team dynamics, investors often urge entrepreneurs to think deeply about how other technology besides their own can enable their venture, be it sensors, cloud computing, AI algorithms or battery technology. Today, many investors are rethinking how they approach asset-heavy technology companies, especially for ventures that have a 20-year time horizon rather than the typical 2-3 years to break even. Funds such as Breakthrough Energy Ventures as well as consistent government support in research and development can make or break startups developing impactful asset-heavy technologies that need a longer pathway to commercialization.
The panel concluded with some essential advice for students looking to start their entrepreneurship journey. First, actively looking for opportunities to innovate and keeping an eye on energy trends are good starting points for budding entrepreneurs. Students can work towards creating a usable solution for an urgent need by identifying specific urgent challenges in industry and developing products and services to address them. Second, ideas are cheap, but execution is hard – testing ideas repeatedly through as many avenues as possible and building a network of people willing to offer good advice can help take the student entrepreneur’s journey to the next step. Third, students need to know what role they can play in a team, and where their strengths and weaknesses lie. Fourth, perhaps the most important lesson for students is to build a solid foundation before jumping in. Taking on jobs and internships in the field of energy can be as helpful to entrepreneurs as they are to students who are interested in a career in industry.
Although there are encouraging signs of change, a lack of gender diversity continues to be a major problem in energy entrepreneurship. Women inventors, for instance, might not imagine themselves in an entrepreneurial role despite having interesting ideas and the right expertise for execution of those ideas. Several initiatives are targeting this specific problem. For instance, Plug and Play’s FoundHer initiative is seeking to better support female founders by building a global network of investors, mentors, and entrepreneurs.
Overall, the panel offered a fascinating overview of entrepreneurship that meets sustainability goals in the products or services it offers, as well as in its own long-term viability.
Photo credit: Jawed Karim (https://commons.wikimedia.org/wiki/File:Stanford_University_arches.JPG)