During the first internet boom, investors and entrepreneurs poured billions of dollars and countless hours into inter-net startups that generated nothing but losses for founders and investors. Their picks could be wrong this time, too. Visionaries who look at more than dollar flow see space travel, data security and even clean water as being equally likely to spawn the next generation of tech innovators.
And don't count out media and entertainment, which came in just behind semiconductors with $396 million in VC investments in the first quarter of 2006. Hesham Fouad, founder and president of VRSonic Inc., believes his Arlington, Virginia, company's spatial audio technology for making uncannily realistic audio sources could revolutionize sounds in theaters and classrooms. "Our mission is to reinvent the role that audio plays in entertainment and training," says Fouad, whose primary customer is the federal government. "We see VRSonic growing considerably in the next five to 10 years, and our technology becoming the new Dolby or Surround Sound for a number of applications." Sounds promising.
Alternative Energy Burns Brightly...
Andrew Perlman has succeeded with startups in telecommunications, semiconductors and biotechnology. But the 31-year-old Cambridge, Massachusetts, entrepreneur may see his greatest opportunity in alter-native energy. Greatpoint Energy, the 25-person company he founded in January 2005, uses a proprietary process to inexpensively convert coal into clean-burning methane gas.
"From an entrepreneurial standpoint, there's huge potential," Perlman says, noting that the United States has more coal than any country, and that coal is about one-thirtieth the price of oil. Coal gasification is one of many opportunities in alternative energy, which includes solar, fuel cells, geothermal, wind, waves, tides, biofuels and energy management systems.
Venture capitalists put $173.9 million into alternative energy in 2005, according to PricewaterhouseCoopers, up from $103 million in 2004 and $36.4 million in 2003. Alternative energy also boasted the world's biggest offering of 2005: the $400 million IPO of China-based Suntech Power Holdings Co. Ltd. That kind of money excites both investors and entrepreneurs.
"Everything in energy has really boomed," says Craig Cuddeback, senior vice president of Cleantech Capital Group, a member organization in Brighton, Michigan. "There's enough money going into it to make it worthwhile."
Still, alternative energy boasts little truly paradigm-busting technology. Coal gasification has existed for decades, as have solar energy, ethanol and other major technologies. So far, no one has a revolutionary approach that improves on older methods enough to produce a clear winner in any alternative energy area. Perlman must deal with an expanding roster of competitors while persuading investors to finance a gasification plant that may cost several hundred million dollars--and may not generate nearly the returns VCs demand. But he's confident it's worth it: "There aren't too many opportunities on the planet that have bigger potential."
Mark Henricks is Entrepreneur's "Staff Smarts" columnist.