|Greentech Investments to Drive Through Slowdown|
By Jeff St. John
February 16, 2009
While the economic downturn has challenged VC investment in the green sector,
innovation will continue to be driven by corporate, public and political
emphasis on green technologies as a way to solve the world's energy and
There's plenty of reason to worry about investment in green technology in the
short term –a global economic slowdown, tightening of credit from investors,
cash-strapped government budgets and the falling price of oil.
Advertisement But thinking of these short-term challenges shouldn't distract
investors from the longer-term promise for green technology as the only way to
solve the world's unprecedented energy and resource shortages, Ira Ehrenpreis, a
general partner in Palo Alto, Calif.-based Technology Partners, said Wednesday
at the Cleantech Investor Summit in Palm Springs.
"Amid the financial meltdown and financial crises, cleantech has evolved,"
Ehrenpreis said. "Cleantech isn't about this year, or next year, it's about the
next 100 years."
Ehrenpreis and the hundreds of fellow investors and entrepreneurs at the event
should hope he's right. While green technology saw a record $8.4 billion in
investment in 2008, investment in the fourth quarter of the year fell 35 percent
from the third quarter, to $1.7 billion, the smallest quarterly total in the
past year and a half, according to Cleantech Group.
GTM Research recorded different figures of 2008 investment of $7.7 billion, $2.5
billion of it in the fourth quarter.
It's easy to see why. Amid an economic downturn that could match the Great
Depression in intensity, credit for large-scale renewable power projects has all but dried up.
That's left venture capitalists, who invested more in solar and biofuel
companies than any other sectors last year, worried that their next steps –
taking a company public or securing hundred-million dollar financing for
large-scale construction projects – may be closed to them.
Still, there are plenty of areas to invest in, he said.
"Today we see material investments in energy infrastructure and the smart grid,"
he said "Coal accounts for half our energy production in the United States, but
it needs to be cleaner And water ... may prove to be the source of more conflict
than even petroleum."
"We see huge opportunities in areas like green building, [energy] storage and
water that have been overlooked until today," Ehrenpreis said.
"Traditional energy companies spend less than half of one percent of their sales
on R&D," Ehrenpreis noted. "But here, the challenges begin to look like
Even solar and biofuels can be investment-worthy, if they offer different ways
to profitability, he said.
"Given where the capital markets are today, for smart companies the crisis is
giving them the chance to innovate" through creative tax-efficient structures,
new financing and leasing models, and licensing technology instead of
build-and-operate models, he said.
Other VCs speaking before Ehrenpreis's speech agreed with this premise.
"Even if there's plenty of capital, projects financing won't be there for the
first plant," said Tim Woodward, managing director of Nth Power. This forces
companies to find "creative business models that can play in batteries, solar
and fuels," which can be very capital-intensive projects to invest in, he said.
Or, as Martin Lagod, managing director of Firelake Capital Management, put it:
"These are IP investments," promising an opportunity to license new technology
to better-funded companies or otherwise contribute technology without the need
to raise masses of money for project construction.
Technology Partners has invested about half of its $750 million portfolio in a
"microcosm" of this range of green technology companies, he said. That includes
electric car startup Tesla Motors, CoalTek, "next-generation" nickel zinc
battery developer PowerGenix, methanol fuel cell developer PolyFuel, biodiesel
maker Imperium Renewables.
How those investments will fare, both in the next year and the next hundred
years, remains to be seen.