“Thanks for reaching out Tom. [Client name] looks very interesting, but we do not invest in companies outside the US.”
I am disappointed and surprised by the number of US clean-tech corporate venturing, venture capital (VC) and family office investors that simply do not invest in European companies. Why not? The EU is a large market close to other large markets where the need for clean-tech and resource innovation is as strong if not stronger than in other parts of the world. There is great technology here.
What makes it worse is that by contrast many European investors are desperate to invest in US companies, but sometimes struggle to get deals. We Europeans – I am a Brit, just in case you were wondering – want to invest in the US, but we are not let in. It does not seem fair.
I am realising that VC is like basketball – invented in the US, done in Europe, and very well in a few countries, but to participate at the highest levels, you have to go to the US.
This would appear to be the strategy behind German energy company E.On becoming a limited partner in Westly Group, a successful Californian clean-tech VC firm. E.On is an attractive partner to US technology companies for the simple reason that it has tens of millions of cus-tomers in the EU.
Those European investors that have a smaller European footprint cannot offer this, so struggle to get US deals. This leaves them looking exclusively at European investment opportunities, which is harder work for the simple reason that European innovators are typically less VC-ready than their US counterparts. In my experience, European entrepreneurs do not understand how VC works. They often just do not get it. This matters because Europe will not recover from its era of low or no growth without a stronger venture culture.
What is the best European VC response to US exclusion? If you cannot beat them, copy them. In February, Yellow&Blue exited from Entelios, a German demand response company, when it was bought by Enernoc, one of the US pioneers in demand response whose US venture investors exited via a successful Nasdaq quotation in 2007. Demand response, which involves switching some customers’ electricity off so that other customers can use it at peak times, thereby reducing the need for more expensive back-up power, is a new industry pioneered in the US 10 years ago by Enernoc and others. The business model was copied successfully by Entelios, which was then acquired Enernoc.
It sounds like a perfectly executed business plan. Yellow&Blue, Entelios’s VC backer, was no doubt happy that US VC investors were not involved, so that they did not have to share the returns.
I cannot think of a US company returning the compliment by importing an EU-invented clean-tech industry – let me know if you
can – but I can think of North American companies innovating in response to new European regulations. This is not the same
thing, but it is interesting.
In 2011, the EU’s Plant Protection Products Regulation made 74% of commercial pesticides illegal. Up popped companies like Vestaron and New Leaf, two US companies in the portfolio of the Vancouver-based investor Pangaea. Vestaron’s biopesticides are derived from spider venom. New Leaf’s are derived from naturally occurring bacteria called pink-pigmented facultative methylotrophs. Both companies are aiming to take the dirty pesticides out of Europe’s food. The regulations were made in Europe. The wealth will be created in the US.