Are VC’s distrusting “Green”?

by / Thursday, 21 April 2011 / Published in Smartgrid-CI Blog

Honeywell and Schneider Electric are doing very well. Thank you for asking. The US company just reported a healthy 15% revenue growth for its Q 1 2011
http://Honeywell.com/news/pages/Honeywell-reports-first-quarter-sales-up-15-to-$89-billion;-earnings-per-share-increases-40-to-$088.aspx
At the same time, the French company is reporting almost 13% “organic” revenue growth, without accounting for the revenue generated from acquisitions. http://www2.Schneider-Electric.com/corporate/..20110420_sales_of_4_9_billion_in_q1_2011_continued_strong_organic_growth_at_12_.XML
GE just released financials results that are very much in line with this trend. Other big players are benefitting from the green boom. ABB had a very good 2010 with an 18% growth of its backlog that bodes pretty well for 2011. And, of course, all are also generating more profit and rewarding their shareholders accordingly.
At the same time, green investments seem to become bigger and bigger. A few examples are the selecting of ABB to provide a $900 M power link in India or the DOE offering loan guarantees for two solar projects for, $1.6 and $2.1B, respectively. All of them are supported by investments from Google, HC & E, PG & E, NRG Solar, that are hardly startups.
If big guys and big investments are doing very well, VC’s seem more and more hesitant at investing in startups, as recently reported by Mercom.
http://mercomcapital.com/news.php#windQ12011
A direct effect, or maybe its cause, of this very impressive slowdown in VC investment is a similar slowdown of IPO’s in the solar sector, also experienced on Q1. http://mercomcapital.com/news.php#solarQ12011
At this point, experts can only expect a rebound that may, or may not, take place in the next quarter. http://www.greenchipstocks.com/articles/green-technology-companies-expected-to-launch-IPOs-this-year/783
True, mixing apples and oranges is always a little questionable. It does not make sense to compare big guys’ investments in area where investments are most of the time massive anyway.  But no matter what, the situation of green tech VC investment is not good. The best way to help understand it would be to take a look back at past waves of investments in new technologies; Electronics, PCs, laptops, software, e-business and the new economy.  All of them went through crisis and sometimes through fatal ones. The best example is the internet bubble of 2000.
As far as we remember however, never before has a new “tech.” “wave” been hit by such a flow back in investment so early it its development curve.
Why is this happening?
One explanation would be that “big guys” have learned how to detect innovative companies very early and wipe them of the market in acquiring them quickly. No doubt the big number of acquisitions by big players that took place on the green market in the past few months is striking.
Another explanation is that investors are very cautious either because the lingering financial crisis makes them so or because the green market does not offer them sufficient mid/long term visibility. Indicators related to many key investment decision factors remain fuzzy; what will happen with oil, gas and nuclear in the next few years? Can coal become “clean” and acceptable? What is the real cost and payback of wind and solar? What is the most promising green technology? And so on. A bigger concern is that VC’ s hesitation at investing in green startups may also reflect a growing distrust toward anything green. The difficulty met by Cape Wind for finding customers can only add even more to this distrust.
http://www.bostonherald.com/news/opinion/editorials/view/2011_0421wind_pressure_builds/

And Cape Wind is a $2 6 B investment! If such distrust really exists, let’s hope it will be temporary.

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