Monday, 26 April 2010

Where are the worthwhile green projects, ask investors

Tom Bawden
BRITAIN is struggling to produce commercially viable green companies, according to some of our top venture capital investors.
A dependence on government funding and a lack of management talent in “clean tech” businesses render many of them unworthy of investment, they warn.
Edmund Truell, the private equity veteran who raised £200m for a green fund last year at his new firm Curzon Park Capital, said he is struggling to spend the money.
Jon Moulton, founder of Alchemy Partners and Better Capital, has also warned of a lack of credible green ventures.

The concern is supported by new figures showing that Britain is attracting only 2.5% of the money being invested in green technology globally. The lack of investment comes in spite of a determination by Britain’s political parties to turn the nation into a hub for green jobs and business.
“There is a dearth of viable green companies to invest in because the sector has been featherbedded by government money, which has given it a sense of entitlement,” said Truell, a former chief executive of Duke Street Capital.
“Hundreds of companies have received soggy, government-backed initial investment — first-round seed funding of £1m to £2m. But a good 90% of them are not credible companies because they lack management teams with commercial expertise,” he said.
“Too many clean-tech companies are focused on the technology without considering whether it is something that can actually make money. It is a complaint of many venture capitalists and [fund investors] that there is an insufficient focus on commerciality,” said Truell. “First and foremost a new product has to be economically viable. If it happens to be green as well, that’s a bonus.”
Green investment funds have amassed $12 billion (£7.8 billion) to invest worldwide and are in the process of raising a further $26.7 billion, according to new figures from Preqin, the research firm.
New industry figures show that venture capitalists backed a record 180 green companies in the first quarter of 2010, investing a total of £1.2 billion. Only $48m of that money was invested in British companies, however, spread across 16 firms, according to data from Cleantech Group, a green investment research firm.
Moulton, who specialises in investments worth between £5m and £25m, is also struggling to find green companies worth investing in. “There are not a great number of good green opportunities out there. Some companies are given too much government funding and there is a tendency for penny packet stuff,” he said.
The claims have been backed by Tom Murley, chairman of the British Venture Capital Association’s Energy, Environment and Technology Group, who runs HG Capital’s €300m renewable-energy fund. “In an industry that has been supported by government handouts, there tend to be lots of big ideas that are not typically that commercial,” he said.
“In renewables we have a lot of people who see opportunities, have great designs and think it’s all going to work out in the end. But as we learnt in the dotcom era, that isn’t always the case.
“The key problem is lack of management talent. We have some brilliant guys with some great ideas but we just don’t have the first-class management teams in this sector. This is largely because it’s a new sector and it takes time to attract the talent,” he said.
A wave of investment in green technology companies is expected over the next decade. European early-stage, buyout and infrastructure funds dedicated to clean tech investments have $5.1 billion of cash to invest, of which about $3.1 billion is earmarked for the UK, according to Preqin, which provides data for the alternative investment industry.
Green funds are raising a further $10.9 billion for European investments, with about $3.1 billion destined for the UK, said Preqin. The figures refer only to dedicated green investment funds. Dozens of general fund managers are also planning to plough a portion of their cash into clean-tech investments.
The average clean-tech fund has promised investors an 18.5% annual return on their money, just below the 19.2% promised by the general funds, according to Preqin.
Since most green venture-capital funds have been raised since 2006, it is too early to tell how successful these kinds of investments will be.
The 2010 Preqin Private Equity Review concludes: “Target [returns] suggest that fund managers are expecting to generate high returns but it remains to be seen whether clean-tech funds will achieve these targets.”
The report defines clean tech as anything designed “to minimise any negative environmental impact and efficiently manage the Earth’s natural resources”.