Clean Tech Turning Corner, Says Investor Summit Leader
Clean Tech Investor Summit conference chairman Ira Ehrenpreis kicked off the event with his perspective on why clean tech investing is suddenly gaining momentum.
February 01, 2006
A vivacious crowd of financiers and entrepreneurs gathered today near Palm Springs, California to learn from the leaders in clean-tech venture investing. They are here for the opening of the Clean Tech Investor Summit. "What has changed? The technology and market opportunity have changed."
--Ira Ehrenpreis, Technology Partners.
Clean tech is an amalgam of technologies related to reducing damage to the environment. The industry sector encompasses technologies for cleaner power, transportation and water.
"What has changed? The technology and market opportunity have changed."
Conference chairman Ira Ehrenpreis, General Partner at Technology Partners, kicked off the event with his perspective on why clean tech investing is suddenly gaining momentum.
"When we talk about clean tech, we mean the three pillars of energy technology, water technology and material science," Ehrenpreis said in his welcome address. "One of the special aspects of clean tech is that it takes a broader view of many sectors."
The clean tech industry is trying to separate itself from the image of the environmental movement of the 1970s -- although many of the investors present here today are of a generation undeniably influenced by those earlier times. For today's investors, Ehrenpreis contends, financial returns are mandatory.
"It's a terrific thing that we do from an environmental standpoint, but one of the big differences between what we do today and what we did ten or fifteen years ago when this was called environmental investing is the focus on delivering returns to our LPs," Ehrenpreis explained. "At night we're all excited about the environmental benefits, but that excitement will continue to be fostered only if we continue to deliver returns."
He noted that his firm also invests in life sciences, but rarely is he asked if his decision to invest in a medical device is made purely because the product helps patients live longer. Nonetheless, the tree-hugging image of early environmentalists is, he said, "one of the legacies we deal with."
Ira Ehrenpreis, Technology Partners, offered his optimistic observations on clean-tech investing.
Ehrenpreis outlined three aspects of clean tech that he feels are converging to make the sector an opportunity for investors.
First, clean tech is an underserved investment sector. On a typical pie chart comparing investment in various industry sectors, clean tech does not represent enough money to have its own category, instead being lumped into the small slice labeled "Other." Growth has been strong, but the capital flows remain small -- much like with the Internet sector in its salad days.
Second, clean tech targets some of the largest markets in the world. The growing global demand for both electricity and petroleum is self-evident. Ehrenpreis pointed out that the world's water consumption is growing much faster than the population, due to more intensive use in modern agriculture and industry; yet one in five people in the world is without clean, safe drinking water.
"When we meet here in ten years, water will command as much if not more attention than electricity," he predicted.
Third, the time is right for investment in the sector, Ehrenpreis says, in part because whole infrastructures are undergoing significant change. The electric grid is antiquated and in need of extensive reengineering. There are areas of the country where the water pipes were laid when Lincoln was president. With those changes must come spending and innovation.
Challenges are diminishing
Early in the history of this sector, VCs were approached by companies whose technologies resembled science projects. The companies were led by technologists who lacked entrepreneurial skills. Thus they made mistakes, including poor market timing, that hampered exit strategies.
These challenges are disappearing, according to Ehrenpreis.
"The best example is solar. The same value proposition for solar has existed for two decades," he said. "What has changed? The technology and market opportunity have changed. Solar is reaching a cost per watt where it can compete with the grid."
Ehrenpreis noted ten recent technology IPOs, three of which were clean tech. All of the three were solar-related companies and all, he said, had excellent fundamentals when they went public.
Experienced entrepreneurs are entering the clean tech sector. Although many come from other industries, they see the opportunity in clean tech.
Excellent returns expected
The convergence of factors for success, combined with the steady lessening of the earlier challenges in the sector, will contribute to excellent returns for venture investors in the coming decade, Ehrenpreis concluded. His firm walks the talk: their portfolio includes companies related to batteries, biodiesel, clean coal, fuel cells, material science and water technologies.
The Clean Tech Investor Summit runs February 1 and 2, 2006.