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Picking Through the Trash

December 23, 2010

I noticed this article on clean technology in the Wall Street Journal today, I’d encourage you to go read the whole thing.  Essentially, it’s talking about how the smaller clean technology firms are starting to look to the government for funding.

Mr. Bissell owns MicroMidas Inc., a Sacramento, Calif., start-up that makes plastic out of waste using a technology it developed two years ago. He’s now looking to move into a large manufacturing facility from a pilot plant, but says lenders are reluctant to provide the $10 million in capital he needs to make that transition.

“We’re stuck in between development and full-scale production,” says Mr. Bissell. “It’s tough finding lenders who will bet on a first plant.”

To bridge that gap, Mr. Bissell and other emerging clean-tech entrepreneurs are eyeing the U.S. Department of Energy’s loan-guarantee program. The five-year-old funding initiative is expected to sharpen its focus next year to less-developed ventures in areas such as carbon capture, biofuels and biomass processing as more conventional solar and wind projects gain the attention of private investors.

This is potentially a better model than government earmarks to fund ideas, though I still have some concerns.  But first, why it’s good… occasionally there is opportunity to start a new type of business, and private investors aren’t ready for it.  I’d use space exploration, though actually something like deep-sea exploration is a better example.  The government funded a significant amount of deep-sea studies which later moved more to the commercial field as people found ways to make money.  We’re just seeing that in commercial space programs now.

As a general rule, it’s not a bad thing to reuse waste and make new things.  It might not be the most efficient use of resources, but it does ensure that there’s minimal loss.  In business, where there is less loss/waste, there’s generally future cost-savings.  Note that nobody talks about carbon footprint impacts in this, which I consider good.  These businesses have to prove that they’re making money, not doing good for the world.

And on the bright side, the guy running the office has VC background:

A former venture capitalist, Mr. Silver calls the stage between development and commercial production for young clean-tech ventures a “valley of death”—a place where firms are ready to expand, but don’t have the commercial track record to impress private-sector lenders and investors.

“You’ll see us doing more work in these areas going forward,” Mr. Silver says.

There is a significant gap in funding for new companies, and provided they have a decent business plan, I’m okay with the government loan programs.  Now the caveat: any government program can quickly become a bloated waste of funds, and something “eco-friendly” like this could definately be problematic if it becomes a slush fund for untenable projects.  The article mentions at least one company that was first funded via the ARRA, which is always a warning siren.

All that said, I think it’s worthwhile to find new ventures that are expensive to start and provide funding to let them get off the ground.  After that, the private capital will flow to companies that actually can make money, and that’s capitalism at its best.

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