Thursday, May 14, 2009

What’s Hot and What’s Not: Cleantech Investment Perspectives from Washington to Wall Street

After the well publicized 50% plunge in VC investment in Q1, an 11 year low, entrepreneurs at the May 14 Venture Connection Roundtable event were wondering what experts from investment banking, venture and the energy sector would have to say about the outlook for the near term future of cleantech investing.

Speaking from the perspective of Wall Street, NY-based David Ethridge, managing director and head of the alternative energy group at Cowen & Company, an investment bank, said that banks and hedge funds had, of course, fallen out of the mix of investors. Said Ethridge, “There is a sense of reckoning now. People who have had these incredible A and B rounds - those are a thing of the past.”

"On the IPO side, it's still a nuclear winter, but now the clouds are breaking - a little bit - and people are beginning to solidify their base a bit more since they aren't constantly out there putting out fires."

Ethridge said the hot areas include water, for one. "People have put funds together but there's not a lot to invest in," he said, which was a sentiment echoed by others on the panel.

"Grid storage is also big. And every smart battery company I know is making the pitch that their technology applies to storage."

Chicago-based Shez Bandukwala, co-chair, Greentech Investment Banking with ThinkEquity Partners, said that, on the bright side, cleantech has been the biggest contributor to ThinkEquity's revenues.

On the investment side, Bandukwala said cleantech valuations had gone through a major shift. "Last year valuations were so much higher, but I'd say cleantech still remains top of mind."

"On the demand side of efficiency, we're seeing that lighting is very hot right now. Formerly it was a sector with a lot of smoke and mirrors but now the stuff is real. We're all living with inefficient lighting all around us so the big guys, like GE and Phillips and Acuity, are buying out these lighting companies."

Other technologies on Bandukwala's hot list include smart grid software and technology, hybrid and electric vehicles and battery technology as well as – surprise - auto assets.

"You'll see auto assets out there that will be available - for cheap - that can be redeployed," he said.

In Bandukwala's view, wind was less interesting, because he says it's maturing on returns. His take on solar was that it's still waiting for new technology to get commercialized.

Trident Capital’s Mark Iwanowski said he looks for "companies that have some edge on capital" and looks ahead to future pricing of key energy assets.

"We have several companies in our portfolio [Xunlight, Senergen and Solexant] that address the cost per watt issue," he said, "and over time our forecasting says that cost/watt has to come down. So that's a plus in our view."

Iwanowski said Trident is not investing in companies that are tied to oil prices or linked to volatility in the market itself.

William Brockenborough, general manager of operations for Chevron Energy Solutions, said there hasn't been a change in sentiment among his customer base in the demand side, but that the cost of capital is the more important dimension.

"Cost per watt is not the only factor," he said, "- but any hint of technology risk raises the cost of capital.”

"We're seeing spreads of as much as 100 basis points from competing lenders in project financing which tells me that the commercial banks are still wondering what their risk appetite is."

For more about the panel’s views on stimulus funding, see the blog post on this event.


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