Nancy Floyd is a veteran rider on the energy roller coaster. She’s best known for as a co-founder and managing director of Nth Power, a venture capital firm that invests in clean technologies, including environmentally friendly ones. Before that, she worked for the chair of the Vermont Public Utilities Commission, founded a nonprofit to fund home energy audits, and launched NFC Energy, an independent power company that used new technology developed by NASA and Sandia Labs.

Founded in 1993, Nth Power had a hard time finding co-investors at first, says Ms. Floyd. It took three-and-a-half years to raise the first $63-million fund in 1997. But two years later, cleantech investment was growing fast, thanks to rolling blackouts, deregulation, and the high-tech bubble. But then the dot-com crash came—followed by the Enron scandal—dropped the cleantech sector into a freefall that turned some green investors into cynics.

Enron

Nth Power had no exits in 2001. But Ms. Floyd didn’t give up, and the company had three successful exits in 2002 and 2003.

Last year, the ride picked up momentum. “We knew something was happening when we suddenly got calls from all the big investment banks,” says Ms. Floyd. Aside from concern about the environment, she sees a high demand for reliable power and lower prices for advanced materials in the future. With skyrocketing oil and gas prices and security concerns prompting a desire to reduce dependency on foreign energy sources, the cleantech sector should continue to grow.

Nth Power now manages more than $200 million, with a portfolio of more than 12 companies. Ms. Floyd and her colleagues review 400 to 500 business plans each year—about 95 percent of all energy-tech business plans, she says. And this is just the beginning of the climb, she says. “Watch next year, watch in 18 months,” she says. “You’re going to see a lot of activity. People have woken up to the fact that [energy] is the largest industry in the world.”

Q: How do you know this is a real trend?

A: There’s been a lot of capital flow and successful exists. Some companies are doubling or tripling their revenue year-over-year. Banks and investors—even institutional investors—are becoming interested, and investments have increased in quantity and quality. Companies jumped from IT and biotech to energy. There’s a definite increase in business plans. Also, it’s not just engineers anymore—you’re seeing serial entrepreneurs coming into the sector.

: There’s been a lot of capital flow and successful exists. Some companies are doubling or tripling their revenue year-over-year. Banks and investors—even institutional investors—are becoming interested, and investments have increased in quantity and quality. Companies jumped from IT and biotech to energy. There’s a definite increase in business plans. Also, it’s not just engineers anymore—you’re seeing serial entrepreneurs coming into the sector.

Q: Is the cleantech sector in danger of being over-hyped? Could it create another bubble?

A: Right now, the sector is still under-funded. There is a possibility of hype and a bubble, yes. But today that’s not a problem.

: Right now, the sector is still under-funded. There is a possibility of hype and a bubble, yes. But today that’s not a problem.

Q: What specific challenges do cleantech companies face today?

A: Pinning down the time to market is the trickiest thing in this sector. [Another] challenge is to figure out how to approach the early adopters, and then how to find a way to cross the chasm into the mainstream markets.

: Pinning down the time to market is the trickiest thing in this sector. [Another] challenge is to figure out how to approach the early adopters, and then how to find a way to cross the chasm into the mainstream markets.

Q: What are some examples of companies with good technology that couldn’t meet these challenges?

A: Electronic Lighting made… ballast lights that dimmed in relation to the sunlight, and saved a lot of money, up to 80 percent. We made our first investment in 1997, but they couldn’t cross the chasm and get enough people interested. It was before its time. Also, Electrade had really nice software for trading energy. We made an investment and six months later, Enron went under and the whole market dried up.

: Electronic Lighting made… ballast lights that dimmed in relation to the sunlight, and saved a lot of money, up to 80 percent. We made our first investment in 1997, but they couldn’t cross the chasm and get enough people interested. It was before its time. Also, Electrade had really nice software for trading energy. We made an investment and six months later, Enron went under and the whole market dried up.

Q: What is the next big opportunity for companies in this space?

A: The big infrastructure problem is the aging grid, and the whole automation area. The average age of transformers is 38 years, and their design life is 40. Almost every week transformers explode, causing outages, costing money, even killing people. And how do they find out if a transformer is going to fail? They send someone out to take a sample of oil from the transformer and send it to a lab to get results a week later. It’s just one poignant example of how antiquated the system is. I think about my boys instant messaging for fun, and we still send meter readers out. It’s something that has to change.

: The big infrastructure problem is the aging grid, and the whole automation area. The average age of transformers is 38 years, and their design life is 40. Almost every week transformers explode, causing outages, costing money, even killing people. And how do they find out if a transformer is going to fail? They send someone out to take a sample of oil from the transformer and send it to a lab to get results a week later. It’s just one poignant example of how antiquated the system is. I think about my boys instant messaging for fun, and we still send meter readers out. It’s something that has to change.