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The Start-Up Crunch
By Bizbox
There's a fascinating post on the New York Times's Green Inc. on alternative energy start-ups and how they are hurting right now. It's useful as a brief rundown of what's going on in that specific industry, of course, but it also communicates some points that could have broader relevance to start-ups and small up-and-coming businesses in a variety of cutting-edge industries.
Alternative energy start-ups are struggling both for the reasons all start-ups are struggling--a decline in venture capital funding, the credit crunch, and the generally poor economy--as well as for the specific reason that alternative energy looks less attractive now than it did, say, six months ago. Then, a barrel of oil was priced in the medium triple digits, trading for as high as $147. This meant that alternative energy, which especially in start-up stages is much more pricey to produce than oil, could compete as an energy source. But now that oil is having trouble staying above $50/barrel, the cost structure for alternative energy just doesn't make sense.
So what's going to happen? Ironically, even though now seems like a poor time to initiate an alternative energy start-up, it is those endeavors in their earliest stages who are going to have the easiest time surviving, according to the Times, for the simple reason that earlier-stage ventures require less overall capital. It is the later-stage start-ups--which were started when alternative energy seemed like a good idea economically speaking--who are in real trouble, with almost no one thinking everyone will survive. And the lesson can be extrapolated to the broader realm of start-ups: earlier companies will do better right now than later ones.
Meanwhile, while alternative energy companies' cost structures have been thrown into mayhem by the ridiculous drop in oil prices (a roughly 70% decrease occured over roughly four months), their additional raison d'etre--an environmental and geopolitical need for the West to lessen the degree to which it is dependent, as economies and as societies, on oil--has never been more operative. Which is why government investment of $150 billion into private sector solutions to our energy problem seems like a good idea.
Comments (0)December 15, 2008 1:16 PM
