MAK­ING THE CLEAN­TECH IN­VEST­MENT

Element - - Business -

Clean­tech is still a rel­a­tively new busi­ness sec­tor. It is in­no­va­tive by na­ture, ex­pand­ing rapidly, and the rules of the game change very quickly. For ex­am­ple, corn­based bio­fu­els switched from multi-bil­lion dol­lar cli­mate change-bust­ing hero to star­va­tion-fu­elling vil­lain within a year, clos­ing down all sorts of ex­cit­ing new busi­ness op­por­tu­ni­ties in the process. It still may be worth a for­tune to the less scrupu­lous, but for how long?

This can make clean­tech a tricky cus­tomer for in­vestors. Most in­no­va­tion com­pa­nies be­gin with seed cap­i­tal sourced from what peo­ple in the busi­ness call ‘the four f’s’ - founders, friends, fam­ily and fools. If that early money is enough to get them to the stage where they can demon­strate some­thing with real po­ten­tial, they may be able to con­vince ven­ture cap­i­tal­ists or ‘an­gel in­vestors’ to pro­vide funds in re­turn for a share in the com­pany. Those in­vestors may also join the com­pany’s board of di­rec­tors, adding their own ex­pe­ri­ence and ex­per­tise into the en­deavor.

Be­yond that, if the com­pany still has less money than it has earn­ing po­ten­tial it will ei­ther look for: larger ven­ture cap­i­tal­ist in­vest­ment; some kind of part­ner­ship or buy-out from a larger firm; ap­proach­ing one of the ma­jor banks; or even a ‘float’ on one of the var­i­ous stock ex­changes, where the gen­eral pub­lic can buy shares in what they are do­ing.

The money is cer­tainly out there for the right clean­tech ideas. The re­cent re­port from WWF and the Clean­tech Group showed how ven­ture cap­i­tal in­vest­ment in in­no­va­tive clean­tech com­pa­nies around the world rose con­sis­tently from 2002 to 2008 and peaked at more than US$9.5 bil­lion. The fi­nan­cial cri­sis damp­ened some of this en­thu­si­asm, but the up­ward trend re­sumed in 2010, and 2011 showed the largest first half-year in­vest­ment on record, at over $4.7 bil­lion.

But is that kind of in­vest­ment avail­able here in New Zealand? Many kiwi in­no­va­tors be­moan a gen­eral lack of fund­ing here, with the big money still locked up in prop­erty de­vel­op­ment and a few other tra­di­tional sec­tors. But that doesn’t tell the full story. Sir Stephen ‘The Ware­house’ Tin­dall’s K1W1 in­vest­ment fund, to take just one ex­am­ple, has put se­ri­ous money into what he terms ‘green growth’ com­pa­nies. Th­ese in­clude the Pho­tonz Cor­po­ra­tion, which makes the phar­ma­ceu­ti­cal in­gre­di­ent EPA out of al­gae, and Welling­ton’s Drive Tech­nolo­gies, man­u­fac­tur­ers of high ef­fi­ciency elec­tric mo­tors and fans.

Susie Reynolds, ex­ec­u­tive di­rec­tor of the An­gel As­so­ci­a­tion New Zealand, which sup­ports the coun­try’s an­gel in­vestors, says it’s all about get­ting the right idea backed by the right team.

“An­gel in­vestors want to make a dif­fer­ence in their com­mu­nity, whether that be lo­cal, national or in­ter­na­tional. They are in it for the rich re­wards, and the abil­ity to give back, share their ex­pe­ri­ence and cre­ate jobs,” she said. “Clean­tech ticks all those boxes.”

Some ma­jor banks are also get­ting in on this ac­tion. West­pac was recog­nised by the Sus­tain­able Busi­ness Net­work as Sus­tain­able Busi­ness of the Year in 2011, and has just launched a joint ini­tia­tive with Merid­ian En­ergy to help fi­nance the in­stal­la­tion of so­lar panels on dairy sheds na­tion­wide. The ‘So­lar Shed’ pack­age pro­vides a re­duced-rate, three-year loan cov­er­ing the cost of in­stalling an elec­tric­ity gen­er­at­ing pho­to­voltaic sys­tem.

Var­i­ous ‘busi­ness in­cu­ba­tors’ around the coun­try are also help­ing to cook up New Zealand’s clean­tech ideas, in­clud­ing Auck­land’s Ice­house and Otago’s Up­start. Th­ese bring to­gether ex­pe­ri­enced en­trepreneurs, aca­demic know-how

“They are in it for the rich re­wards, and the abil­ity to give back, share their ex­pe­ri­ence and cre­ate jobs. Clean­tech ticks all those boxes.”

and fi­nan­cial ser­vices to help get new in­no­va­tive busi­nesses off the ground. New Zealand Trade and En­ter­prise, New Zealand’s Govern­ment-backed in­ter­na­tional busi­ness de­vel­op­ment agency, sup­ports sev­eral of the in­cu­ba­tors, but also works to di­rectly sup­port the ex­port­ing as­pi­ra­tions of busi­nesses in the sec­tor.

That said, ac­cord­ing to the In­ter­na­tional En­ergy Agency global fos­sil fuel sub­si­dies are still run­ning at ap­prox­i­mately US$700 bil­lion per year, while world­wide gov­ern­ments are only putting in ap­prox­i­mately US$57 bil­lion to sup­port the clean­tech rev­o­lu­tion. This chimes with the cur­rent New Zealand Govern­ment, which is fo­cus­ing on con­tin­u­ing to ex­pand fos­sil fuel ex­trac­tion, pro­vid­ing an­nual sub­si­dies of $46 mil­lion.

How­ever, clean­tech com­pa­nies are man­ag­ing to get a slice of Govern­ment in­vest­ment through pro­grammes like the $200 mil­lion New Zealand Ven­ture In­vest­ment Fund.

Biotel­liga’s Stephen Ford.

Photo: Steven McNi­choll

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