Investing in Cleantech – the venture capitalist’s perspective

After ten years of investing in early- to mid-stage technology companies in Europe, I recently took the challenge to lead Gimv’s Cleantech investment practice. After only a few months in the position, it would sound arrogant to claim that I have developed a complete vision on this industry or, in my opinion an even more difficult task, a strategy to tackle it from an investor’s point of view. I accepted the challenge mainly because I felt that Gimv is better positioned than the typical venture capital or private equity fund to cope with the unique characteristics of this still relatively new investment segment. What are some of these challenges?

First of all the current (or has it passed us by already?) Cleantech hype reminds me of the days where all business plans had to have a “nanotechnology’ stamp on it. After a few years the nano-hype disappeared but nanotechnology today of course is still a foundation for a great deal of applications, also in Cleantech. Today we again see many business plans that are labeled Cleantech more for marketing purposes than anything else. In our industry, many VCs that focused on a certain ‘hyped or not’ vertical have disappeared (e.g. the initial dedicated internet funds). This raises the question whether the same will happen to the dozens of dedicated Cleantech funds that were established in the last few years or whether the underlying drivers are so strong that a new vertical can sustain itself.

Secondly, the Cleantech label covers a wide range of technologies and sectors, ranging from water purification and power generation to low power chips. Looking at these admittedly extremes in the spectrum it is clear to me that it is going to be very challenging to cover the full breadth of the sector in a typical early-stage venture capital fund. On the other hand, specialising too much would increase the risk profile and make a VC fund very vulnerable.

Thirdly, the Cleantech industry needs some breakthrough innovations to increase the economic viability of certain applications. My first observations, however, indicate that the cycles to bring these disruptive ideas to market are longer than the typical VC cycle of around 6 to 8 years. Certainly the current economic circumstances will not help the risk taking attitude either, therefore many VCs have turned to either later stage investments or investment in companies that focus more on making gradual improvements rather then breakthrough ones.

To successfully invest in the Cleantech industry, therefore, it seems essential to me that one is able to rely on broad expertise and experience in technology, life sciences, growth and project financing (since Cleantech overlaps with or taps into all these areas), and that one is able to take a longer-term view. At Gimv, given our size and financial strength, we are fortunate to be in that position. However, the future will tell whether our team will be able to convince Gimv’s internal and external stakeholders to not only think green but also think long term, which is not always easy for a public company.