Future Energy

Canadian Venture Capital - Still Shy?

I came across an interesting article on the Canadian technology sector in the Globe & Mail this morning (see Bellwether Sector Feels Economic Pinch, September 25th).  The occasion was the release of Deloitte's Fast 50 list, a list of the 50 fastest growing technology companies in Canada.

What first caught my attention was Deloitte's statement that the most profound impact on the country's tech sector was the lack of venture capital.

"”But it is the lack of venture capital funding in Canada that has had the most profound impact on this country's tech sector, he says.

The rankings show that beginning in 2002, shortly after the burst of the tech bubble, venture capitalists began tightening their purse strings, making it more difficult for companies to secure startup funding.

"Post-2002, you started seeing a massive decrease in Canadian VC financing of these companies," Mr. Ruffolo says. "It takes around five years before you really start to see the signs of actions that occurred in the past, and now we're starting to see it.

"We're seeing their top-line growth slow, largely because with a lack of financing they can't necessarily make the big bets they would have liked to have made in the past.""

But it was what was missing from the Fast 50 list that held my attention: there were no energy companies of any kind - greentech, cleantech, renewable, etc.  This gap was corrected to some extent when I looked at Deloitte's original press release, indicating that cleantech companies were one bright spot in an otherwise gloomy prognosis for Canadian venture capital.

"A continuing bright spot in the Deloitte Technology Fast 50™ program is the increased quality and size of Technology Green 15™ winners. They have been able to attract venture capital and IPO attention. It appears as if any company that allows you to do more with less ― conserve energy, produce more oil and gas, use coal more responsibly ― will be the winners in the years to come."

But ... they're still not in the Fast 50.

At first glance, the change from 11 months ago when I based a post on another Globe & Mail look at Canadian venture capital (see Canadian Venture Capitalists Shy From Green Technologies?, October 26th, 2007) appears to be positive.  However, its hard to find signs of significant new venture cap. investment in sustainable energy.  Back in that earlier post, I noted four companies that were bucking the trend at that time, including:

• Chrysalix Energy Venture Capital
• Ventures West Management Inc.
• Yaletown Venture Partners
• XPV Capital Corporation

I'm not aware of any others having entered the fold in the past year.

All of this makes a bit of a contrast with the picture KPMG painted in a report on U.S. venture capital investment in greentech, released earlier this week.  KPMG polled 301 venture capital firms and found that 91% expect continued increases in venture funding of greentech (most of which is energy related) in 2009.  A summary of KPMG's report is available here!

U.S. Venture Investment in Cleantech Sets Record in 2007

Cleantech Investment Overwhelmingly Energy Focused.

Yesterday, the National Venture Capital Association (NVCA) issued a press release highlighting the growth of "cleantech" investing by the U.S. venture capital sector (see Cleantech Venture Investments by U.S. Firms Break Record in 2007, November 28th, 2007).  The sector invested U.S.$2.6 billion in 168 deals this year to-date (i.e. to the end of the third quarter), a significant increase over the U.S.$1.8 billion invested in 2006. 

Noteably, less than one-half of this investment was in the U.S. with the three largest investments of the year-to-date in the Netherlands (U.S.$500 million), Brazil (U.S.$200 million) and China (U.S.$118 million).

The technologies that the VC's were chasing were largely related to alternative energy and power supplies, accounting for almost 95% of the total invested.  Solar energy was the most popular target, with U.S.$665 million directed at 35 deals.

I first came across this announcement in a post to the Wall Street Journal's Energy Roundup Blog (see VC's Get Clean, November 28th, 2007).  Noteably, the WSJ's writer highlighted comments in the press release attributed to Mark Heeson, President of NVCA, cautioning venture investors.

"... as has been demonstrated in the IT and life sciences arenas, investing in new technologies can be fraught with pitfalls and is not for the inexperienced or the faint of heart.  Prudent, long-term investment in cutting-edge technologies has been the hallmark of venture capital in the past and should be the mantra in the Clean-Tech space as well.  Short term 'tourists' should steer clear."

While I couldn't help but think of the dot.com bubble when I read the words prudent and long-term, I think this is a good warning for all who would invest in the sustainable energy arena.  The caution simply reflects the risks associated with investing in the small caps and start-ups that make up much of this sector of the energy investment universe (and a warning I've given before, see The Bumpy Road For Small-Cap Investing, October 29th, 2007).  End of reality check.

While U.S. venture capital is the largest single source of venture investment today, it is far from the only source.  I would be interested in finding statistics for global cleantech venture investment, to the extent there is an organization that has been able to compile this.  Any suggestions?

Canadian Venture Capitalists Shy From Green Technologies?

This morning's Globe & Mail has an article that suggests Canada's venture capitalists are a cautious lot when it comes to green technologies (see 'Green' Proves Tough Sell).  Richard Blackwell in the Globe quotes Vicky Sharp, the CEO of a federal government agency Sustainable Development Technologies Canada:

"venture capitalists still focus on traditional resources and telecommunications businesses, and appear fearful of new, environmentally friendly breakthroughs"

On the surface at least, it all appears in stark contrast to the mood among U.S. venture capitalists, that sees Silicon Valley leading the charge into clean technologies, renewable energy and other 'Green' investments. A recent diagram from October edition of Wired Magazine provides a colourful illustration of this trend (see Silicon Valley Cleans Up: A Wired Flowchart, here's the flowchart).

All is not lost though.  In his article Blackwell does identify three Canadian venture capital companies that are bucking the trend, including Vancouver's Ventures West Management Inc., Yaletown Venture Partners, also of Vancouver, and XPV Capital Corp. of Toronto. 

A quick look at their respective portfolios suggests a collective total of approximately 7-8 investments in clean energy technologies.  Perhaps Blackwell should have taken a look at Vancouver's Chrysalix Energy Venture Capital which has 18 alternative energy investments listed on its website.

P.S.

Shortly after posting this I came across one of today's articles at Greentech Media that talks about the role played by U.S. venture capital firms in the biofuel sector.  See Are Biofuels Pushing VC's Into a New Role?