As part of our ongoing series on stories on investment in the cleantech sector, we had a chance to discuss the sector with one of the venture capitalists at Emerald Technology Ventures.
Scott MacDonald is an Investment Director with Emerald Technology Ventures, a global leader in cleantech venture capital. Founded in 2000 under the name SAM Private Equity, Emerald is a pioneer in this rapidly emerging sector and is focused on innovative technologies in energy, materials and water. With offices in Zurich, Switzerland and Montreal, Canada, Emerald manages three venture capital funds and two venture capital portfolio mandates totaling over US$380 million. Scott currently serves as Chairman of RuggedCom and as a Director of Solicore and SoftSwitching Technologies. Prior to joining SAM, Scott held the position of Managing Director at OPG Ventures Inc., the venture capital subsidiary of Ontario Power Generation. Previous to OPG Ventures, Scott worked for ACF Equity, an early-stage venture capital company focused on investing in information technology companies. Scott graduated with a Bachelors degree from McMaster University and an MBA from Dalhousie University. He is a member of the North American Advisory Committee of the CleanTech Venture Network.
I know a bit about the history of SAM and Emerald Technology Ventures, and as one of the oldest cross-border investment groups in the cleantech area, I am very curious to get the Emerald Technology take on a number of issues. So we put to Scott a few thoughts and questions to get their take:
Emerald sponsored the San Francisco GreenVest 2007 conference I am chairing in June, and you are speaking there – can you share a few of your insights on the future of the cleantech area as an investment asset class?
I think we are in the early days but there is certainly an element of notoriety that the sector has attracted over the past 12 months with scientists, politicians and venerable VCs claiming action is required now to save the planet from global warming. A reputable and experienced LP in the venture asset class told me just last week that every generalist fund they speak with mentions an initative in cleantech. I think the great generalist funds will invest in the sector (as you know a few already are) and they will likely be successful. The specialist funds like Emerald will continue to map out and invest in innovating technologies because of our technical expertise and experience. Based on a number of successes exits to date in our first funds (Evergreen, Schmack Biogas, Pemeas), the specialization strategy seems to be working well. A really exciting development is that we are starting to see repeat entrepreneurs. Cleantech entrepreneurs that have successfully exited and are looking to try it again – and we couldn’t be happier. This was a key factor in the growth of the IT sector in the late 80s and 90s.
And can you fill me in a bit on the ins and outs of the recent fund history – the mandates with CDP and Ontario Power, your fund raise last year, and the subsequent MBO to form Emerald?
In 2000, SAM Group (Sustainable Asset Management), a leading asset management company specializing in sustainability investments and headquartered in Zurich, launched SAM Private Equity as its venture capital arm. That same year SAM Private Equity closed the SAM Sustainability Private Equity Fund and the SAM Private Equity Energy Fund with a combined EUR 90 million in commitments from leading institutions and strategic corporations. Both of these first funds are fully invested. In 2004, SAM Private Equity was awarded the portfolio management mandate from la Caisse de Dépot et Placement du Québec (CDP), a large Canadian-based pension fund, to manage its direct energy technology venture capital portfolio. Following the awarding of this mandate, SAM Private Equity increased its North American presence with two former members of the CDP team and established a North American office in Montreal, Quebec. In 2005, SAM Private Equity was awarded its second portfolio management mandate from Ontario Power Generation, a large Canadian electric utility, to manage its direct energy technology venture capital portfolio. To further strengthen its North American investment focus, two members of the former venture capital arm of Ontario Power also joined the team.
In March we announced the final close of our latest cleantech focused venture fund with commitments of EUR 135 million (US$180 million). We are going through a name change but the fund will be renamed Emerald Technology Ventures Fund II. Strong investor demand helped us exceed our original target for the new fund of EUR 100 million. Investors in the new fund are leading investment companies, financial institutions and multinational corporations from around the globe including: GIMV – Belgium, Rabobank – Netherlands, Caisse de dépôt et placement du Québec – Canada, Axpo Holding – Switzerland, Springbridge Limited (Advised by Consensus Business Group – UK), Credit Suisse – Switzerland, Deere & Company – USA, DSM Venturing – Netherlands, The Dow Chemical Company – USA, KPC Energy Ventures, Inc. – Kuwait, Piper Jaffray Private Capital – USA, Suncor Energy Inc. – Canada, Unilever Corporate Ventures and Volvo Technology Transfer AB – Sweden.
I have to ask, the name change – Sustainable Asset Management was an old brand in the cleantech investment sector, why the name change to Emerald?
Following the buy-out we are a private independent VC manager now and as such can no longer use the SAM brand. The SAM brand is powerful but it also was the source of some market confusion for our venture capital division. It’s clear now that Emerald is an agile and independent global VC manger with in-house expertise in the cleantech sector focused on investing exclusively in the cleantech sector and we have a new fund to do deals.
How many deals have you done from the new fund, how much capital have you employed, and what are you expecting to do over the next 12- 24 months?
We have made three investments out of the new fund and are closing on two more which should be announced within the month. We have only announced two of the investments to date – Vaperma and Identec (details of each is on our web site) www.emerald-ventures.com
I would expect we will invest in about 6 portfolio companies in total this year. We like to invest between US$2 -5 million in the first round depending on the opportunity and the stage. Technology, market and management are what’s important to us – we will consider all stages. Well…if it’s just a conceptual idea on a bar napkin we need to know the entrepreneur has made himself and others very wealthy in the past (preferably us – back to the serial entrepreneur comment).
What’s your passion these days? What technologies are you focused on?
I think there is an incredible opportunity for new technologies to help upgrade the antiquated electricity grids in Europe and North America and to leap frog into the incredible build-out that is going on in countries like India and China. China last year built an average of five 300 megawatt electricity plants a week and energy consumption is expected to continue rising fast as China aims to quadruple the size of its economy by 2020. This means a lot of new grid infrastructure technology will be deployed. We have a number of portfolio companies in the “smart Grid” space and will continue to seek out investments in this space.
You’ve had a couple of recent exits in fuel cells – what fund were they from, and has that changed your appetite for similar technology areas in the future?
We have had recent exits in this area: Pemeas which we sold to BASF and Cellex which we sold to Plug. We still have an number of other FC investments in our portfolio that we are bullish on – Angstrom Power and PolyFuel. I would say we have learned a lot about the general FC market and understand many of the technology challenges and market adoption risks much better. We are still interested in the FC space – I would just say we are a more sophisticated FC investor now.
What does Emerald see as the main differences between investing in cleantech in Europe versus the US?
The topic of an article in itself but quickly: Deal structure, Corporate governance model, Company history (many family business in Europe), labour laws, language, proximity and access to stock exchanges which are more accommodating to VC backed companies (Frankfurt Prime Standard, AIM), valuations (typically more favourable than the US – comparable to Canada where we are also very active). The short answer is lots but both regions provide great opportunity to generate investor returns. Again or investment thesis is based on the fact that unlike IT, cleantech is a global business and as such, investment opportunities are not limited to Silicon Valley or any other specific geography. At Emerald Technology Ventures we have taken a distinctive approach to addressing the challenges associated with technology specialization and geographic diversity. Our approach includes having technically competent people in-house and locating our Partners and Technology Specialists in two of the most important Cleantech markets in the world: North America and Europe.
We have done a lot of writing at Cleantech Blog on topics including ethanol, solar – so I’d like to get your 1 sentence rapid fire take on a couple of always topical cleantech investment debates:
– Thin film vs. Conventional PV – Thin film if you have deep pockets and patience
– Solar concentrators vs. Flat Panel – No comment, yet.
– Cellulosic vs. Corn Ethanol – Science project vs. commodity. I’m a VC…science project always wins.
– Cleantech vs. Greentech – Make great products, build great businesses and provide great returns to investors (and hopefully help out our world along the way) and no one will care what you call it.
Thanks Scott. Especially with those last comments, you’ve provided some good food for thought. The venture capital sector is built around high risk, high reward, and you guys are certainly in the mix. We continue to keep our fingers crossed that cleantech sector can deliver on the rewards side. You can find more on Emerald at www.emerald-ventures.com. And don’t forget to visit GreenVest on June 25 in San Francisco.
Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks.