February 27, 2009
Briefing Note For Workshop XIII
This Briefing Note has been prepared for Workshop XIII of the 2009 European Business Summit. The workshop will run between 10.45 and 12.00 on Friday 27th March 2009. This session will be moderated by Paul Adamson, Chair of The Centre.
Thoughts and Quotes
“Capital is cowardly, it has great interests at stake” bus as debt markets dry up, venture capitalists are taking up the slack. Indeed, many of the more conventional investors should take note of the long-term investment approach of the VC world.
“While overall venture investing hasn’t yet been impacted by the turmoil in the financial markets, as evidenced by the $7 billion plus invested in Q3, we do expect to see a dip in investing over the next several quarters. We also do not expect venture funding to dry up. Venture capitalists have slugged through difficult economic times before and this one should be no different. They are long-term investors and won’t jump ship just because the times are tough. They may tighten their belts and those of their portfolio companies but they still have money in their coffers and will continue to make investments.”
Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers.
Uncertainty and risk are the twin demons that capital seeks to avoid, but for CleanTech venture capitalists there are long-term underlying environmental and population trends that cannot be denied. If matched by clear, consistent, and stable long-term global regulatory frameworks a degree of certainty can be found in meeting growing clean energy, water and food demand.
The Clean Technology sector, which … comprises alternative energy, pollution and recycling, power supplies and conservation, saw an increase in investment (in the US) in the third quarter with $1.0 billion dollars going into 73 deals. This level of investment is 14 percent higher than the second quarter when venture capitalists invested $887 million into 68 deals. This quarter is the second quarter in which Clean Technology investment has exceeded $1 billion. Additionally, four of the top ten deals for the quarter, including the top 2 deals, were in the clean technology sector.
Key Observations from 2008
Solar is outpacing other renewable energy technologies, receiving 36% of all Cleantech VC investment in 2008, up from 6% in 2003. New generation thin-film and Concentrating Solar are receiving the most interest.
Wind offers the greatest present day potential to offset fossil energies, but its mature technology status has meant that investments are being driven by project finance rather than VC. Wind accounts for roughly 5% of Cleantech VC investments.
Interest in biofuels has waned ($23million average round size in 2006, $11.6 million in 2007), but can be expected to increase as interest in second generation biofuels grows (cellulosic ethanol and algae biodiesel). The latter overcome many of the controversial issues concerning the use of food commodities as fuels.
Potentially the least-cost solution to carbon emission reductions, the low-hanging ‘negawatt’ fruit are being eyed-up as green buildings investment surged in Q2-2008, reflecting promises of tighter regulations in the building sector.
Underinvestment in agriculture and water solutions remains a stable feature of the market – this despite long-term certainties over demand for food that is expected to double by 2030, and continued degradation of the soils and access to water worldwide.
VC investment in transportation is down ($97M in Q2-2008 from $137M in Q1-2008). However, recent stimulus packages for the transport sector in the US and Europe may cause the major car companies to invest in the next generation of mobility solutions through VC markets.
Europe: European (including Israel) cleantech VC investments declined 37% from Q1-2008 to $257M. However this reflects the lack of a big energy deal in this quarter.With 16 seed round investments in the 2nd Quarter the future is not bleak.
US: The third quarter of 2008 saw $1.0 billion dollars going into 73 deals. This level of investment is 14 percent higher than the second quarter when venture capitalists invested $887 million into 68 deals. This quarter is the second quarter in which Clean Technology investment has exceeded $1 billion. Additionally, four of the top ten deals for the quarter, including the top 2 deals, were in the clean technology sector.
India and China: Cleantech is taking off in the region with seevearl new funds being developed. Totals are low compared to EU and US, but several big players are moving into a market where energy and clean water supplies are limited and where food and infrastructure demand is greatest.
Some issues for the future
With debt financing uncertain, can and will VC take up the slack?
To what extent will Obama’s green vision for America impact the VC market? Is Jeremy Rifkin’s’ prediction (made at EBS 2008) coming true – will the US surge to catch up with and overtake the EU to become the market leader in cleantech?
Why is there no EU-wide ‘Environmental industry Strategy’ even though one has been promised for years ? Sadly many EU policies and support mechanism are uncoordinated and fragmented.
How will failure to reform the European Trading Scheme (ETS) with the continued handing out of allowances impact the VC market?
Is it desirable or possible to decouple the oil market from that of renewable energies so that short-term fluctuations in the price of oil do not impact the profitability of renewable energy investments?
Venture Capital – an overview
Venture Capital (VC) represents an effective way of financing innovative start-up companies, as well as expansion of existing firms through buy-outs. The VC approach to financing enterprises has historically been more prominent in America than in Europe. In 2006, for instance, US firms have raised $45 billion, five times as much capital as the EU’s $9 billion .
Cleantech VC firms currently invest in the following industry segments:
1. Advanced Materials: Nanomaterials, biomaterials, chemical, hybrids/composites
2. Agriculture & Nutrition: Pesticides, irrigation, food products, land management
3. Air & Environmental Quality: Emissions control, emissions monitoring, trading and credits
4. Energy Generation: Wind, solar, hydro/marine, biofuels, geothermal, others
5. Energy Infrastructure: Management, transmission, quality
6. Energy Storage: Fuel cells, advanced batteries, flywheels, ultracapicitors
7. Energy Efficiency: Lighting, sensors, automation, conservation
8. Manufacturing & Industrial: Advanced packaging, monitoring and control, smart production
9. Materials Recovery & Recycling: Recycling, resource preservation, waste processing
10. Transportation & Logistics: Propulsion, advanced structures, advanced infrastructure, vehicles
11. Water Purification & Management: Treatment, metering, infrastructure, conservation