Doug Henwood Talks

New York Times - April 30, 2007

Venture Capital Rushes Into Alternative Energy By MATTHEW L. WALD

Money is flowing into alternative energy companies so fast that “the =

warning signs of a bubble are appearing,” according to a report on =

investment in clean technology by a New York research firm, Lux =

Research.

The report also suggests that companies that make equipment to =

cleanse air or water, or that process waste, have been overlooked by =

investors.

Matthew M. Nordan, president of Lux, said that the amount of venture =

capital put into clean energy investments last year was $1.5 billion, =

up 141 percent from the $623 million of 2005, and that in the same =

period, initial public offerings by companies in this sector rose to =

$4.1 billion, from $1.6 billion in 2005.

The initial public offerings were primarily in companies involved in =

solar power or biofuels, according to the report, to be released today.

The investment is driven by fear that the peak of oil production is =

approaching, he said, and by the possibility of new taxes or other =

restraints in an effort to curb global warming gases, principally the =

carbon dioxide that is given off by burning fossil fuels.

Money is “sitting on the shelf” waiting to be invested, and investors =

are now chasing entrepreneurs, he said, rather than the other way =

around.

“When you see venture capital more than double from one year to the =

next, and I.P.O. values double from one year to the next, that’s the =

sign of a bubble in the making,” said Mr. Nordan.

As an example of a new participant in the booming market, he cited =

DFJ Element, a venture capital fund formed last year to invest in =

clean technology companies. It had a goal of $150 million, but was =

closed to new investors by the sponsoring companies, Element Venture =

Partners and Draper Fisher Jurvetson, last June when it reached $284 =

million.

Mr. Nordan said that his company counted about 1,500 clean technology =

start-ups globally, 930 of them in the energy field. “One hundred =

ninety-eight have received some venture capital funding,” he said. =

“That’s a pretty high share; generally, we see one out of 10 with =

some venture capital.”

The investors, and the companies they finance, are chasing an =

enormous market. Mr. Nordan pointed out that China planned to derive =

10 percent of its electricity from renewable sources, not counting =

large hydro projects, by 2010. Meeting that goal would require six =

gigawatts of electricity, which if produced by solar cells would =

represent more than two years’ output of all of the solar cell =

factories in the world today.

While many =97 and probably most =97 of the start-ups are pursuing =

technologies that will not be commercially successful, even some =

alternative energy companies using established technologies may be on =

shaky financial ground, according to the report.

For example, the profit margin for ethanol made from corn was once a =

dollar a gallon, but now it is about 3 cents, according to the =

report. And environmentalists have objected to the approaches of some =

companies, like those making new bioengineered products.

Still, the promise seems enormous. “The secular trends are in place, =

and that’s what’s driving the investor,” Mr. Nordan said.

But areas of clean technology other than energy have been overlooked, =

the report said.

“Air, water and waste segments present hidden opportunities that are =

relatively starved for investment,” it said.

Waste accounted for 32 percent of merger and acquisition value in =

this sector in 2006, but just 1 percent of initial public offering =

volume and just 4 percent of venture capital, it said.

This entry was posted on Monday, April 30th, 2007 at 7:39 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.