The Sunday Globe had an article on the subject of green energy firms ramping up lobbying. The whole stimulus package is in the process of igniting a mad scramble for money (and not just in the clean and green spaces – as I have pointed out elsewhere, telecom is another space where the scramble has begun. Helathcare as well – no doubt.) To my mind there is some feeling that the pendulum has swung far in one direction. But, I don’t want to write about the mad scramble, at least not today. What caught my eye was a paragraph on page G-5 and more particularly the following sentence, "And the hope is that the federal government’s stimulus funding will help spark a similar kind of explosive growth [similar to the internet] for the green energy sector – even if it takes a decade or two to really pay off." It is the decade or two part that interests me.

Consider this: most (all?) venture funds have a life cycle of 10 years. To state the obvious, a venture fund will not make an investment whose benefits cannot be reaped in less than 10 years. In fact, ten years is too long. I am not commenting on whether federal policy makes sense or whether the VC model is inappropriate. I am merely noting that the VC investment model is not geared to making investments that require more than 10 years to realize a pay off from.

There are many really cool green companies that have a value proposition that can be realized soon. One of our clients, Advanced Electron Beams, which was featured in the Globe article, is one – of many. These companies have a value proposition that works today – with the price of oil where it is today. These companies will get private investment money.

As for the rest, investors are making a bet that, not only will the technology be successful and the management team be able to win in the market, but that the economic conditions necessary to permit venture type returns will exist within a time frame that works for the investors. By the way, that time frame is getting shorted everyday for funds that were raised last year and the year before etc.

Also, as many people have pointed out, some of these green energy projects require huge amounts of capital. This fact, of course, makes the bet riskier. Something will have to change for private money to find these projects attractive. Right now there is something of a fervor for green energy investments, but as time passes and the money gets older and the returns are not realized, this fervor could change. The pendulum could swing the other way, just as we need these projects to get rolling.