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Cleantech: Can David Learn to Love Goliath

David and Goliath

Traveling around Silicon Valley last week, I heard the David vs. Goliath story over and again, but in surprisingly different versions. In some, David (in the form of a cleantech start-up) aims to kill incumbent market giants, in others they end up in bed together. Yes, this was San Francisco, but it seems we are seeing a seismic shift in the cleantech industry's underlying narrative.

Nowhere was this more apparent than at the sixteenth Cleantech Forum. After trekking through the Valley of Death, as Cleantech Group President Sheeraz Haji put it, many cleantech firms see operating conditions improving—not least because of the $512 billion in direct government stimulus funding. But he warned that China's $200 billion cleantech stimulus is way ahead, with China and Hong Kong accounting for 69% of cleantech investment last year.

I was in the Valley to help guide a group of founders, CEOs and senior executives of 19 U.K. cleantech companies taking part in the first Clean & Cool Mission. And it was striking how the sustainability lexicon surfaced everywhere we went, whether to giant companies like HP, public sector actors like San Francisco's City Hall, leading change agents like Arup or IDEO, or early stage companies like Better Place or Serious Materials.

Once again, as economist Joseph Schumpeter predicted, the great economic tectonic plates are in motion—with key drivers including climate change, energy security, water scarcity and the growing green sensibility. Cleantech Group Executive Chairman Nick Parker told the Forum's opening session that "creative destruction is accelerating." In 1960, S&P listed companies lasted an average 40 years, which had halved to 20 years by 2000—and the turnover rate is now 10% a year.

Who, he wondered, would be tomorrow's "clean chips?" He underscored the growing interest of corporate giants, with Google alone responsible for two of the largest three cleantech deals last year. We are seeing a shift from cleantech-focused venture capitalism to cleantech-oriented M&A, accelerated by the fact that the downturn has ensured there are "a lot of cheap assets on the chopping block."

Several major corporations used the Forum to trail their cloak, among them Boeing, Coca-Cola and Duke Energy. There are many reasons why this is happening, but Parker saw the take-off point as 2005, when both General Electric and Walmart switched on to sustainability. Now even Bill Gates has put his substantial shoulder to the climate wheel, with his recent TED speech.

The most striking of the big corporate come-ons was unveiled by Veolia Environnement. Senior Vice President Philippe Martin announced their new Innovation Accelerator, saying that he expects to be joined on the Forum platform in 2011 by the CEOs of at least four new cleantech firms Veolia will be working with by then.

They say you hear what you're listening for—so I was instantly alert when Nick Parker reflected that it has taken "a long time for this to get into the C-Suite." I had already discussed with Fast Company a new blog series we hope to launch early in April, focusing on how sustainability and social innovation challenges are looming on the radar screens of CEOs, CFOs, COOs, CTOs, CMOs, and CSOs (the new breed of Chief Sustainability Officers), among others.

The U.K. cleantech firms I was with made a quite an impression on those we visited. Virtually an A-to-Z, from AMEE (which helps clients calculate their carbon footprints) to Xeros (which aims to green the global laundry market), they aim to develop partnerships with the right sort of giants.

Venture capital is a stepping stone—with Xeros CEO Bill Westwater joking that he might even set up a laundry in Sand Hill Road to help VCs see his particular version of the future. That said, several Canadians I spoke to worried that economically weaker countries seem to be wrapping up their cleantech IP in "pretty bows" so it can be scooped up by Valley VCs!

In summary, the challenge for those of us acting as dating agencies between the Davids and the Goliaths will be to ensure that the resulting relationships are as equitable and productive as possible, to encourage a tsunami of innovators, entrepreneurs and investors to pour into this vast new opportunity space.

John Elkington is co-founder and executive chairman of Volans Ventures and co-founder and director SustainAbility. His most recent book was The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World (Harvard Business School Press, 2008).