Venture capitalists claim to have learned their lessons after being burned in the last “green rush.”
Many are trying to reposition away from funding academic science projects to focusing on investor returns, fund managers gathered in California said recently.
Discipline would be the key to successful investments as venture capital companies start a renaissance in financing clean tech enterprises, said the head of a new energy and resource investment fund at the GigaOM GreenNet conference in San Francisco.
Adam Grosser left Foundation Capital to lead Silverlake Kraftwerk, backed by the “largest commitment to an outside vehicle” from the $1bn George Soros set aside to invest in clean energy 18 months ago.
A more workman-like approach to Kraftwerk’s investments was reflected by the name which means power station in German, suggested Grosser. He said: “At Foundation I invested in 11 companies in 9 years. They will all make money. I got approached by 3,000 companies a year and only picked one.”
During the last “green rush”, some VCs got their fingers burnt as the global recession took hold. However, there are signs that the sector is beginning to attract more investment. The Cleantech Group last month reported that clean tech investments had risen to $2.57bn in the first quarter of 2011, an increase of 52% from the previous quarter.
Grosser said he had learned from the past and the focus of the new fund would be providing growth capital to later-stage ventures in the energy and resource sectors.
He said: “People got overly enthusiastic earlier in the decade about where the right place to apply external capital was. As much as we would like to perform a social benefit create projects that have a greater good, we have a fiduciary responsibility as well. And a lot of money got spent on academic science projects.
“We’re at the stage now where well over $15m has been invested in the last 10 years and it’s time to anoint the winners, the market leaders that are going to create this next transformation,” Grosser said.
The company is opening offices simultaneously in Silicon Valley and Shanghai in recognition of Asia’s growing strength in the clean tech market.
Grosser said: “If you look at where the investment dollars are being spent, where the regulatory frameworks are impressive, it’s not necessarily the US. So when you start to see where these products and services are going to reach scale it may not always be in North America.”
Grosser also appeared with his partner at Silverlake Kraftwerk, Cathy Zoi, who served as assistant secretary at the Energy Efficiency & Renewable Energy unit under Steven Chu.
Grosser said Zoi would bridge the understanding between the public and private sectors: “We were very naïve as an industry broadly about the effect of the regulatory environment. Many of us failed to take into account was how capricious and byzantine the regulatory environment can be. That was a minefield that took a decade to wade through.
“We’re going to change the way large scale capital is deployed for energy and resource solutions, so I need someone who can talk to government with a lot more grace than I would otherwise do.”
On her fourth day in the new job, Zoi said that her experience of imposing discipline in the DoE’s R&D department would help Kraftwerk make better investment decisions: “Some of the early stage investing was more hopeful that the market would be willing to pay 2,3,4 times more for electricity. The focus very much needs to be very practical and commercial on what the market will bear and how policy can help.”
She also said Kraftwerk would advocate for a clean energy standard in an effort to enhance returns on investments. “One of my first lessons in Washington was: it’s easier to stop something than to get something through. We’re advocating for a clean energy standard which the world needs, the US needs. Getting a new piece of legislation or regulation through is much harder than the business as usual. Having a clear-eyed view of what that landscape looks like is something we can bring to our investors to invest their money wisely and create lots of profits.
“Energy is the invisible engine of economic growth in this country and we can help shepherd that wonderfully given our experience.”