I have run venture-backed startups through three recessions, and as many bubbles. For the past few years I have been an early-stage venture investor -- literally on the other side of the table from by entrepreneurial brethren. I don't like the term "cleantech "... Like the preceding bubbles, nanotech, telecom, Internet, laser, and the previous wave of solar in 1989 -- they are all just tech. Many were driven by government regulation or deregulation, and all were overdriven by excessive investment. These bubbles opened Pandora's box of technologies and created a new breed of entrepreneur, more like a showman or game show host to promote them -- rather like the perception of an entrepreneur I left in Australia 23 years ago.
VCs like entrepreneurs who are deep in the space, ideally those who tried to build their idea within their jobs but got so frustrated that they were forced to leave and go it alone. They may want to get rich, but more than that they want to change the way things are because they have a clear vision of a better way. Greed is OK, but it doesn't carry you through the tough times that plague any startup. Sergei & Brin had a great vision, ironically are only executing on that vision in the past 18 months, and after finally succeeding on Plan E, it wasn't greed that carried them through the near-shutdown of their yet-another-search-engine company...but it sure paid off. It's hard to find the diamonds among the showmen and promoters, but they are out there, especially in Australia and especially in deep tech organizations like CSIRO and NICTA.
A second fundamental tenet of venture is to find white space (more recently called "blue ocean"), and it's very hard to find white space in a bubble where 20 companies are funded to do essentially the same thing. One or two will survive. Most of cleantech is ICT: Smartgrid is ICT; solar is optical and semi; wind is optical, mechanical, and ICT; bioFuels is biotech, materials, ICT-- there is a common theme here that is endemic to early-stage technology companies, and VCs are very good at making these bets work. We are not a cleantech fund; we are a typical early-stage tech venture fund, but if you look at our portfolio you will find we have a wireless company that provides near Gbit/s broadband for last mile and drops 80% of the cost and power from fiber solutions; a chip co that enables processors that consume 1/10 the power in data centers; a sensing company that measures flow in water, oil and gas, and wind to increase energy efficiency; a superconductor company that reduces power, increases range, and decreases the number of base stations needed for cellular phones; and a coatings company that increases the efficiency of solar panels.
Some of cleantech is energy generation -- it's an old established industry that moves slowly and is dramatically affected by government. Most of the projects in that space are infrastructure financing projects masquerading as early-stage ventures, meaning that instead of needing about $10M to carry a fund through three rounds of financing, you need $100M, as several of the recent "exits" in that space have shown. However, it is still possible to nibble around the edges of energy and leverage the second order effects like increased efficiency technologies that add a few percentage points to the total power output and translate to low-cost, high-return investments.
I think the key to success in the cleantech space is more related to geography than technology. Unlike the telecom bubble whose market driver faded as bandwidth needs were satisfied (saturated), the market driver for cleantech started as politics, then moved to public perception, and is not driven by genuine need. That need is not going away. The geography determines the politics and the need. If investors can really align with the politics and the genuine need of a geographic area, truly locally, then win-win deals can be made.
I have recently put my money where my mouth is, by raising a $200M clean energy fund partnering with Australia and China, two geographies with unique needs. So time will tell if I am right. Please feel welcome to make any suggestions or advice; we need all the help we can get!