Returns In Cleantech Investing Run Hot And Cold

Investing in clean technologies is hot, but investors can quickly find themselves left out in the cold.

Just ask Kevin Costner, who recently informed a British magazine he lost roughly $40 million on two cleantech ventures. One that was developing a non-chemical battery promising enough to win a NASA contract.

Even professional venture capital funds do not count on more than one in ten of their investments really panning out, but those are the game-changing companies that more than make up for the other fizzlers.

Many players in the clean-tech sector fully expect some price bubbling – if only as validation of an attractive investment area. But they also insist it is inherently less susceptible to the outlandishly inflated valuations witnessed during the dot.com boom-bust cycle.

“There is real science [here] going after real solutions,” argues Joseph Muscat, Americas director of Ernst & Young’s clean advisory service. This is reflected in the provenance of many new technologies.

Robert F. Bukaty / AP A cluster of windmills of the north side of Mars Hill Mountain is seen Sunday, Jan. 21, 2007, in Mars Hill, Maine. Maine land use regulators took a big step Wednesday, Jan. 24, 2007, toward denial of proposed wind project in Reddington Township, citing concerns about its visual impact. (AP Photo/ Robert F. Bukaty)

The Chase Is On

Roughly half of global patents related to water technologies are coming from Asian countries, where water constraints are more pressing present-day concerns, according to Nicholas Parker, co-founder of Cleantech Group, which claims it established clean technology as a viable investment category in 2002.

Similarly, most of Canada’s current crop of clean technologies is coming from the energy-rich Western provinces where familiarity with the demands of oil/gas industries gives inventors an inside track on the most pressing worries. In other VC-supported sectors, 80% of start-ups originate on the east coast, explains John Ruffolo, Canadian director of Deloitte & Touche’s technology, media and telecommunications group.

In the last 18 months there has been “nothing less than a stampede” of more mainstream VC firms coming into the cleantech sector, says Ethan Zindler of New Energy Finance, often partnering with the pioneer firms of the sector – such as Rockport Capital Partners, Technology Partners, Nth Power - to take advantage of specialized knowledge  accumulated over the past decade.

The new attention is mostly welcome, says Rob Day of @Ventures because many of the deals demand knowledge of a number of disciplines and industries and bring the bigger bucks needed to move start-ups closer to exit payback through acquisition or an IPO.

Nth Power’s Rodrigo Prudencio says that his firm partners with others to address any “blind spots” his small outfit may have, helping maintain its “excellent hit rate” which have included some of the better known star performers in this space.

“The scale of the challenge and opportunity keeps getting bigger and therefore there are more and more venture capitalists diving in, which is good in one sense, there are many more collaborators, but frankly there is more competition for deals,” says Prudencio. The Silicon Valley firm got started in 1997 and currently is in its fifth fund, with a total of $400 million under management.

CONTINUED : Valuations And Volatility

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