Time for Venture Capitalists to Stop Acting Like Sheep?

Venture capital has largely thrown in the towel when it comes to capital-intensive clean-tech startups. There’s a story in the New York Times that adds another wrinkle, focusing on companies selling less-expensive technology aimed at making energy consumption more efficient. They’re attracting more investors than a few years ago. (The quote below is from Adam Grosser, a partner at venture capital firm Foundation Capital):

Venture capital is starting to move away from its infatuation with alternative energy and returning to one of its traditional strengths: applying information technology to improve the efficiency of energy consumption.

Many investors say developing new forms of energy can consume hundreds of millions of dollars over many years before showing any return. Mr. Grosser’s firm, however, is looking for technologies that reduce demand for energy. “We need to move markets with small amounts of money,” he said.

Mark Heesen, president of the National Venture Capital Association, said the eBay or the Google of the clean tech industry is not going to come from energy-efficiency companies but from those that create new forms of fuel. “Does it cost more money to do that? Absolutely,” Mr. Heesen said. “But when it comes to game-changing technologies, you’re not going to get it with doubles and triples.”

via Venture Capital Shifts to Efficiency From Alternative Fuel – NYTimes.com.

Lord knows, I’m all for these smaller investments in companies like Silver Spring Networks, a firm in Foundation Capital’s portfolio that makes technology for utilities to connect electric meters in a digital grid. But, Heesen is also right. We need new forms of fuel. We really need it. And that costs money. And it takes a willingness to assume a long-term vision.

Perhaps federal stimulus money will encourage VCs to start investing again in more-capital intensive clean tech–at least in those areas that are receiving government funding. But I’d also say this situation simply underlies one of the most annoying aspects of the venture capital business: the herd mentality. It happens over and over. They all rush to fund PC software. Or early Internet startups. Or Web 2.0. Or capital- intensive clean-tech. And then they all run away, at the same time.

There’s got to be a better way.