Tom Whitehouse, chairman of London Environmental Investment Forum and founder of Carbon International, explores trends in clean-tech.
1. Multicorporate venture capital firms make clean-tech sense
Zurich-based Emerald Technology Ventures and Vancouver-based Pangaea Ventures are two good examples of venture capital firms (VCs) with growing rosters of corporate limited partners (investors).
Emerald’s backers include Unilever, Volvo and ABB. Pangaea’s backers include BASF, Sabic and Solvay. Evonik is committed to both. What is interesting is that all of these corporates do direct venture investing. So why do they want to also back a separate VC?
There are two reasons. First, the VCs typically have better execution skills. A corporate energy VC admitted this in London. “Getting buy-in from our internal business units is very hard, particularly when they keep changing their teams,” she said.
Second, committing funds to a multicorporate VC is an inexpensive window on innovation and dealflow. It is cheaper than hiring a team, paying rent and utility bills. “I invested in Pangaea simply because I was not seeing enough dealflow in advanced materials,” said one of its limited partners I bumped into. It now has plenty of dealflow.
2. Clean-tech billion-dollar start up? Not quite, but we are getting there
Outside the information and communications technology sector, the billion-dollar start up is hard to come by. The closest thing in clean-tech is the $200m Californian start up, NanoH20, a high-efficiency desalination business which began life as a humble Stanford spin-out. It raised equity from the financial and corporate investors Khosla Ventures, Total and BASF, which have now exited the business following its $200m sale to LG.
Those who regularly read this column know I have written about NanoH20 a lot. You ask: Where are the other large successful water deals? Be patient, I answer. Water is slow. This is because of the Zenon law. Zenon, a Canadian advanced membrane business that started in the 1990s, took about 10 years to get to more than $50m in revenues. The Zenon law states that water technology companies cannot grow faster. Zenon’s sale to General Electric in 2006 for C$760m remains perhaps the best exit in water technology history. But it took time.
Could clean energy be faster? I think it might because the utility business model is ripe for disruption. Smart utilities – such as Eon, Vattenfall and ESB – are taking venturing seriously, with backing respectively for the Westly Group, a US VC, Yellow and Blue, a Dutch VC, and Greencoat, a UK investment company. They are buying a window on innovation. Other utilities I met in London are very keen to follow. For utilities it is a case of venture or wither and die – or be acquired.
3. There is a lot of underutilised intellectual property in large corporates that needs to be set free
If it is not strategic to the parent, it may nevertheless find a home elsewhere. This is an overlooked venturing opportunity. But I felt that the French corporate I heard trying to flog water-tech to his corporate venturing colleagues could be barking up the wrong tree. They are typically not fast enough. See above.
4. University venturing is good for the clean deal
Bring it on. It was good to see Brits like SetSquared – a collaboration of several UK universities – out in force. Other regions will be copying the US model for university venturing. I like Aqdot, a Cambridge University Chemistry Department spin-out, which did an A round with Imperial Innovations, a pioneer in university venturing, and Cambridge Enterprise, a relatively recent addition. Financial and corporate VCs will be all over Aqdot soon. It has a good clean story.