Will venture capitalists find greenbacks in green investing?

Gregory Heibel, a partner in the emerging companies group of Orrick, Herrington & Sutcliffe, explains how clean technology may be coming back in vogue in Asia.

Before the recent global economic downturn investors saw the clean technology market -- which includes renewable energy such as wind, solar and hydropower, as well as biofuels and electric motors -- as the next big thing. But when the crisis hit, alternative energy and so-called green thinking in general took a back seat to more immediate and pressing economic problems.

Of course, the need to come up with clean technology remains -- indeed, in places like Hong Kong and the east coast of China where clear blue skies and sunshine are the exception rather than the norm, one would think investors would be all over this market. 

FinanceAsia talked to Gregory Heibel, a partner in the emerging companies group of Orrick, Herrington & Sutcliffe, about the return of the clean technology market.

It has been said that venture capital investments in clean technology are starting to come back following the market collapse. Can you give us some general thoughts on where the clean technology market is right now?
Overall, although 2009 was a down year for global cleantech investment (cleantech venture capital investment globally dropped from $8.5 billion to $5.6 billion), it was not as hard hit as venture capital investment generally. We see that trend continuing into 2010.

Why has cleantech investing fared relatively better?

Many venture capitalists see cleantech as an opportunity to invest in truly novel, game-changing technologies, and not simply to chase a different approach to a particular IT market. As a result, we've seen the number of venture capital investors focusing on cleantech increase dramatically.

Within the clean technology sector, where are the most interesting investment opportunities, as far as Asian investors are concerned?

Like in the US and elsewhere, we believe that investors in Asia will look for relatively capital-efficient investment opportunities in areas such as smart grid and other demand management technologies. We also believe that there is an opportunity for strategic and corporate investors to invest in and collaborate with later-stage venture capital-funded companies that have found the capital markets more difficult to access.

Why are later-stage venture-capital funded companies of particular interest?
Asia-based investors, in particular Japanese, Korean and Chinese companies with sophisticated research and development capabilities, have the ability to assess complicated technologies and utilise their access to capital to help these companies fully commercialise their technologies.

Where do you see the main cleantech investment opportunities?
Cleantech industries, including venture-backed companies, have been the beneficiaries of significant government stimulus funding. We believe that this funding will help facilitate increasingly vibrant cleantech investment markets. Governments in the US and China have been particularly aggressive in their stimulus activities. European countries such as Denmark and Germany are already at the head of the pack in their use of green technologies, and we don't see that changing in the near term. Accordingly, their markets are highly receptive to cleantech products and technologies, and their companies should benefit, as a result.

What is your outlook for venture capital investments in clean technology? What makes them attractive investments?
We expect venture capital investment in clean technology to grow in 2010 and beyond. We see cleantech as a way of categorising a wide range of advanced technologies that will drive economic growth in the 21st Century. Many of them represent major changes in how people live and work. With those sorts of massive paradigm shifts come opportunities for companies that can create and perfect these technologies, as well as their investors.

Can you elaborate further on the outlook for the cleantech industry?
We are cautiously optimistic for 2010. Certainly cleantech investments will be much better than in 2009. We saw an acceleration in activity in the second half of 2009, and we believe that as the global economy improves, this acceleration will continue. There have been recent successful IPOs in the US of cleantech companies such as A123, and there are a number of other cleantech companies that have filed or are said to be preparing filings. If these public offerings continue to be successful, investors will have greater confidence in their ability to reach liquidity events for cleantech companies, and as a result will have greater confidence in making early stage investments. That said, there remains significant uncertainty regarding the IPO markets, and the next several months will be telling as to how strong the markets truly are.

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