It has been a difficultyear in the clean technology sector as the high-profile collapse of US-based solar panel company Solyndra, which was backed by venture capital firms (VCs) and more than $500m in government grants, fuelled growing pessimism about the sector’s prospects among some firms.
Girish Nadkarni, chief executive of ABB Technology Ventures, the corporate venturing unit of the eponymous Switzerland-based utilities company, said: "In clean-tech you are not going to get a Google-type of return. In IT [infor-mation technology] if you can make 10 investments, four lose money, three return your money and three make a 10-times return, in clean-tech we should aim for six making three times the money."
Fortunately for the future of clean-tech, it appears many corporates are, at least for now, staying the course in the sector for strategic reasons, even as more purely finance-focused investors have moved to reassess their investments.
Global Corporate Venturing tracked 148 global investments involving corporates worth $4.1bn last year. This was nearly the total in US clean-tech venture capital, which reached $4.9bn last year, 4.5% down on 2010, according to accountant Ernst & Young, while data provider Cleantech Group said in its preliminary 2011 analysis there were 713 deals globally, worth $9bn.
While there may be differences in the methodology, the relative size of deals involving corporates suggests many of the biggest companies in the sector have benefited from the strategic expertise and large balance sheets of corporate backers.
Heiko von Dewitz, who heads the European clean-tech activities of Intel Capital, the corporate venturing unit of the US-based chip-maker (see related content), said: "Other players and ourselves may adjust activities in clean-tech, but we will stay fully engaged. There are a great deal of positive perspectives the corporate venturing model offers in the sector. There will be players dropping out, but I hope the majority will stay investing."
Many corporate venturing executives said they could not pull back from the clean-tech sector, even if they wanted to. Nadkarni said: "Do you know the saying about contribution and commitment related to the ham and eggs breakfast? They say the chicken contributed but the pig is committed.
"The notion that smart grid or clean-tech is unattractive, say, might cause us to look a little bit more carefully, but we cannot walk away from any of these sectors like a financial VC can. We also tend to have a very long-term view – unlike a financial VC, which has a 10-year fund life. We can be a lot more patient as some of these businesses take many years to build."
Michael Mahoney, manager for North America at Saint-Gobain External Venturing, which looks to establish relationships between the France-based construction company and start-ups, said: "At the moment, venture solar investments are decreasing. Yet we find it very interesting because we have an established solar position and many new technologies would like to have a strategic partner to enter the market.
"As a glass company, [Saint-Gobain is a] supplier for the market of front and back sheets of glass for solar panels. In addition, Saint-Gobain is a world-leading manufacturer of CIGS [copper indium gallium selenide] thin-film solar panels."
Some believe clean-tech VCs need to avoid overly capital-intensive deals, which has been said to be part of the downfall of Solyndra and caused other problems for investors in the sector.
Claus Schmidt, a managing director of Robert Bosch Venture Capital, part of the Germany-based industrial group, said: "In the clean-tech area at the moment more and more VCs are stepping away from it as it is pretty capital intensive. We are more keen to stay as there are opportunities in the market as long as it remains the kind of environment where other VCs are willing to invest so it can stay as capital efficient as possible."
Schmidt added: "In clean-tech there was a little bit of a bubble, and there was too optimistic money in some deals which did not pay out. I see this as a natural wave. People go in optimistic and the time comes when you realise what is going on. Then you see consolidation and then after that the more realistic game starts."
Ralf Schnell, chief executive of Siemens Venture Capital, which has roughly half of all its investment in clean-tech on behalf of another Germany-based industrial group, said: "We have to be cautious of all deals which require a lot of capital.
"We have to be clear. We always look at what is project financingand what is venture capital. It is a different approach to financinga business activity. These things have different risk to return profiles and cashflows."
Schnell added: "Our view on the clean-tech space was always very realistic and we have been cautious to spend money in the right opportunities. We are close to our operating people and know what it takes to make things work on the customer side. In some cases this will require a smaller or bigger amount of capital and then it is really helpful to have the operating experience of our divisions to sort this out."
Albert Fischer, managing director of Yellow & Blue, the corporate venturing unit of Nuon, part of Germany-based energy group Vattenfall, said: "The solar business is going through turmoil and wind is a difficult sector. New energy is the lowest-performing index and there is no money available. Yet we are going steady because of the European Union’s 2020 target. We know there is a legal obligation for energy companies to meet this target from the generation side, so naturally there is interest from Nuon in investing more in renewables."
David Mesonero, director of business development at Spain-based renewable energy company Gamesa, which launched a €50m ($70m) corporate venturing fund last year, said: "There is now a Europe-wide network of corporate venture capital investors who know each other. We are speaking about co-investment on a regular basis and I have no doubt there will be some big transactions in the next few months."
Mesonero added: "It is becoming more important for technological investments that a corporate venture capital investor is going to be involved either at the time of a financing or at a later date. At the moment many financial funds look to co-invest with corporates – although I have no doubt when we leave the current recessionary environment changes, they will also look to invest large funds on their own."
The turmoil in the sector arguably presents a buying opportunity for corporates because valuations have fallen. Jonathan Bryers, a founding partner at Carbon Trust Investment Partnership, the venturing unit of the UK-based non-government organisation, which sponsored the research by Global Corporate Venturing, said: "It is a very good time for corporates to step forward into this space. The pressures of climate change targets mean that look-ing at a fiveto 10-year perspective it is a good time to be moving into the market and this is an opportunity to invest at a pretty low price."