Alternative Fuels are the new Software

Back in the 80s and 90s leading up to the Internet boom that preceded 9/11, software companies were oftentimes great investment bets. Typically, the software solved a business or widespread consumer problem and could grow rapidly via evolving distribution channels. Today, with our energy crunch in full swing, alternative energy companies are poised to become the next software companies of our day. Growing fuels from algae, harnessing solar or wind power and storing it with next generation ultracaps, many companies today have the ability to upset the tradition oil markets with breakthrough technologies. You may find good investment opportunities if an alternative energy company mirrors a software company in these 3 ways:

1) Revenue Model
The company's revenue model is based on licensing not manufacturing or producing (eg. Algenol). Alternative energy companies that try to take their technology from concept to factory to showroom floor are climbing an uphill battle that they may not survive. Focus on companies that focus on their tiny niche capability and allow others to distribute it.

2) Install Base Prestige
The company must have a marquee customer utilizing the technology successfully today with proven prospects tommorrow. The oil companies these days are flush with cash. They are ready to experiment and spend. A small company that lands an initial licensing deal is more likely to land similar deals.

3) Alternative Energy 2.0
By staying lean and focusing on enhancing existing capabilities or going beyond existing patents, alternative energy companies can create ongoing revenue streams through licensing upgrades to existing products.

The main thing you want to look at with today's alternative energy companies is it's ability to allow it's technology to proliferate rapidly. A company that tries to go head to head with a deep pocket entity like Exxon Mobile is not likely to last and your investment dollars should go elsewhere. But if a company has a technology that it can sell in small quantities to a large number of people to seed a new market, that's one where you probably want to see your dollars grow.

The jury is still out on whether Valcent and it's Vertigro strategy fits the model but the seeds are certainly there. Picture farmers, small oil producers, ranchers and regular traditional american entrepreneurs attempting to produce their own algae farms. If their initial experiments succeed, the second round of investment can increase rapidly through several cycles.