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A cleantech bubble (III)?

According to a report from Lux Research, the industry has “exploded”, while they use the term referring to the industry’s growth (at the time of the report -May, 2007- there were 1,500 cleantech start-ups worldwide) they also warn of a “boom-and-bust scenario”.

While the US is the market leader for venture capital deployed (72%) and patents issued (46%), Europe is the IPO leader, with a 55% of the IPO value for 2005 and 2006.

The Kyoto Protocol and Carbon Emissions Trading have fueled European companies to invest in, as well as the purchase of carbon credits from alternative energy suppliers, but cleantech is fueled by much more than just cleaner power companies.

In fact, at the Greenvest 2007 conference in June, industry veteran Nancy Floyd (founder and managing director of Nth Power) claimed that the Cisco of cleantech is “around [the] energy intelligence area” and that “whoever figures out the energy storage piece will be a millionaire.”

Others argue that cleantech doesn’t have to be so complicated. During the Greenvest panel Harnessing the clean tech future, Lee Bailey (managing director and co-founder of the US Renewables Group) explained how the industry can learn from the lower-tech ideas of the past. “My view is the ’70s were Jimmy Carter, you’re going to put a sweater on and turn down the thermostat. You know what, from an efficiency standpoint, that works.”

We talked to Vancouver-based venture capitalist Steve Turner who explained that as a partner with the Canadian Venture firm Ventures West, the big power generating companies are out of his league. Instead, he is chasingcleantech’s “lower hanging fruit”, like energy storage, electric cars and efficient homes.

Steve Turner: “Our firm is a small venture capital firm up in Canada. We have a diversified portfolio of cleantech IT and biotech. In our cleantech pod, we traditionally have done fuel cell investments, plus we are broadening out in some power electronics investments. Cleantech is very broad, so we’re interested in building efficiency; we’re interested in the electrification of the vehicle -plug-in hybrids; perhaps certain parts of the solar value chain- . And silicon processing; we have an invest in that area. The reason we are represented in Greenvest 2007 is to find out wether there are some other areas that we might be missing. Of course, it’s very broad based so you can’t chase after everything.

faircompanies: What do you think so far, are you missing anything?

I think it’s validating that we’re looking in the right areas. So much of cleantech is project-based financing and debt financing and it doesn’t necessarily fit the traditional VC [venture capital] model. I think we know we’re looking generally in the right areas and things will change and you have to stay flexible, but I think we’ve validated that some areas that we’re focusing on are either -you want others to be interested in them, but you don’t want the herd mentality necessarily.

So you’re looking at plug-in hybrids?

I did say the electrification of the vehicle and plug-in hybrids would be one element of that. Perhaps a more nearer term option than some of the visions of where vehicles are going. So the auto OEMs will kind of carve out their territory on what they will probably develop for vehicles going forward, but there will most likely be some spaces of technology development and power electronics that are open for entrepreneurial companies to get involved in. With the plug-in hybrids, specifically, there are, of course, batteries, and there’s going to be other power management and electronics and charging and the spaces that the OEMs will probably leave for others to develop. We’re not currently active in that area, but it’s a theme that we believe is gaining momentum and believe that there’s going to be opportunities there. And plug-ins is maybe a more nearer term play on the larger electrification of the vehicle.

As far as biofuels, do you see any value there?

Certainly there’s been a lot of investment in that area. We don’t see it as fitting the traditional VC model of 10 times return in 5 to 7 years. It’s a lot of project-based financing and we’re of the opinion that there may be a bit of a bubble there. Corn prices are super high and ethanol from cellulose is the holy grail and we’ll monitor that area. But traditional corn-based bio-fuels or ethanol, I don’t think you’ll see us focusing in that area.

Are you looking at all at some of the flashier areas like solar, wind, wave power?

I would say that we are less inclined to focus our attention on power generation, all those being distributed power generation sources. It’s a much larger challenge. Efficiency, we think is some lower hanging fruit; building efficiency- smart windows, smart thermostats, smart grid, of course, as well. Cutting demand which, in turn, cuts operating costs so there’s an economic angle to it. Some of that is going to have venture opportunity, some of it will be engineering design, architecture so the LEED certification side of it. We think there will be opportunities there.

Green building has been such a big thing, but for venture money?

That’s right, there’s been huge growth in that area. Have there been a lot of venture opportunity so far? Not that I’m aware of, but there are some out there.