July 24, 2007 (Australian IT) — DOTCOM entrepreneurs are beating a path to the clean technology sector as cashed-up super funds open the spigot for ventures targeting green concerns ranging from energy to drought and global warming.
Venture capitalists who raked in big bucks during the 1990s internet boom are also setting their sights on cleantech, with plans to funnel tens of millions worth of general technology funding into green startups.
Worldwide, investment in clean technologies designed to reduce consumption, increase industrial efficiency and slash emissions, has exploded in the past three years.
The Cleantech Venture Network reports that North American and European venture capital investment in cleantech hit $US3.6 billion ($4billion) last year, up 45 per cent from 2005 and more than double the $US1.7 billion pumped into the sector in 2004.
Similarly, industry development group Clean Technology Australasia has tracked a surge in the number of deals in the local cleantech sector.
“In 2004-05 we tracked just over 200 deals in Australia. We did the same report again in 2005-06 and we tracked just over 300 deals,” Clean Technology Australasia chief executive Jeffrey Castellas said.
“This is an area that is certainly undercapitalised and the market opportunities and growth opportunities for these technologies are big.”
The opportunities are tantalising traditional technology venture capitalists, who have earmarked big chunks of their investment funds for the sector.
High-profile dotcom venture capitalist Bob Christiansen has said a slice of his new $170 million Southern Cross Fund would go to green investment opportunities.
Melbourne venture capitalist Starfish Ventures, meanwhile, says about a third of the $200 million it had under management was intended for cleantech deals. The fund was also targeting IT and life science plays.
“There’s interest growing across multiple dimensions,” Starfish investment director Ivor Frischknecht said.
“Firstly, the number of startups is growing, so that’s the ultimate driver. Along with that, and this is a really, really positive trend, there are quite a lot of accomplished, experienced startup professionals coming into cleantech from the IT sector.”
Starfish has already staked out positions in two cleantech startups: soil moisture sensor developer Senviro; and energy efficient welding technology developer MIGfast.
MIGfast is also backed by Cleantech Ventures, a new breed of dedicated clean technology venture capitalist emerging in Australia.
Last month Cleantech closed a $50 million early stage fund with $20million in federal Government Innovation Investment Fund money and a $30 million injection from VicSuper.
Private equity player CVC is also in the market, raising $30 million for its Sustainable Investments fund.
Cleantech investment principal Jan Dekker said he expected more cleantech-focused funds to emerge in the future because the commercialisation channels differed from IT and life sciences.
“Most of the funds are taking a more opportunistic approach at the moment rather than a targeted approach,” Mr Dekker said.
“We believe you really need a targeted approach because the channels for execution of a lot of these technologies are quite complex.
“In the water and energy sectors you’ve got to know those spaces if you’re going to be able to get your technologies to market.”
Cleantech advocates such as Mr Dekker, Mr Frischknecht and Mr Castellas argue that Australian startups are well positioned to capitalise on global markets, particularly in areas such as water conservation.
“One of the interesting things about the water sector is that Australia is leading the world in restrictions, regulations and policies. That means there’s a lot of innovation designed to meet the needs of regulators,” Mr Frischknecht said. “The rest of the world is behind us in the sense that they also have water problems that are perhaps less acute.”
Mr Castellas said Australian advances may finally draw US pension funds to the country in a serious way.
Clean Technology Australasia has brought giant California state pension fund CalPERS to the country twice in the past year and the organisation is due to visit again next month.
Mr Dekker has also met with CalPERS but said he was not aware of any US venture funds that were committed to providing capital for local cleantech startups.
However, some startups have independently secured international backing, such as South Australian water sensor developer Agrilink, which lists agribusiness giant Monsanto as a customer, and locked down $7.5 million in funding in April.
The April funding round included a $2.5 million injection from Portuguese venture capitalist Espirito Santo Ventures and $1 million from the Australian Centre for Energy and Greenhouse Technologies, whose Centre for Energy and Greenhouse Technologies Fund is managed by Cleantech Ventures.
Fellow water sensor developer Senviro, meanwhile, is poised to license its technology to an undisclosed multinational residential irrigation system manufacturer that expects to market the product here under its own brand.
The manufacturer has worked to co-develop the sensors but has not invested directly in Senviro, which is at an earlier stage of development than Agrilink.
Senviro was spun out of the Co-operative Research Centre for Micro Technology about two years ago.
The Queensland startup has since secured $350,000 in seed funding from Starfish, teQstart and the CRC, and chief executive Steve Davis said interest in cleantech firms was rising rapidly.
“People are a hell of a lot more aware about water technologies and clean technologies generally,” Dr Davis said. “Everyone has become hugely aware of the water issue and I think these sorts of technologies are much more widely accepted.”
The growing interest in clean technology has led to concerns that some startups in international markets are massively overvalued, recalling memories of the dotcom boom and bust that devastated the IT sector early this decade.
Venture capitalists such as Mr Frischknecht and Mr Dekker argue the risks of another bust are much lower because many cleantech companies are developing products for markets that already exist, rather than trying to create new markets with their products.
“The opportunity is that, globally, there’s climate change, issues with oil prices, water stress, population growth, all these sustainable drivers and they’re not going to disappear,” Mr Dekker said. “It’s not another dotcom bomb.”
Mr Frischknecht added: “There’s no doubt that many of the listed solar entities overseas are overvalued.
“We’ve seen price-to-revenue ratios in the order of 20 to 40 times, and those are unsustainable.
“However, there’s no question that the market is growing rapidly and the cleantechs are going to turn out to be real companies, like Yahoo and eBay and Amazon turned out to be real companies.”