Clean Tech in ‘Early Innings:’ Goldman Exec

The clean technology industry hit rock bottom last year, and is now in the early stages of a strong recovery, the same way the technology sector flatlined and then surged after the fall of 1990. Goldman Sachs Group’s global head of the clean technology and renewables business, Stuart Bernstein, outlined his reasons why the clean tech sector was on the rebound, and what investors should keep in mind during the next 12 months at the Cleantech Forum conference on March 28th in San Francisco.

According to Bernstein, there are several factors fueling the turnaround in sentiment about clean technology. First, volatility has decreased dramatically since September of last year. The Vix, for instance, was at 39 last September and 15 last month. That means buyers who typically sit on the sidelines until volatility is lower – even if it means forgoing returns in the early part of a recovery – will be re-entering the market soon.

Third, fund managers have finally begun to see the “tidal wave” of outflows slow down, and some have even begun to see inflows, said Bernstein.

“If you’re a public mutual fund manager and you have outflows, all you can think about is what you can sell from your portfolio. You can’t think about anything new… when you have inflows, then you can invest,” said Bernstein.

And finally, Bernstein said follow-on offerings, share repurchases – which took place recently at Berkshire Hathaway and Apple in clear signs the companies believe their stock is undervalued – and forthcoming lower-beta IPOs will all be signs that the market for clean tech has improved.

“We have the ingredients we need for a better clean tech market,” said Bernstein.

Despite the fact that “things look horrible,” in the overall economy and in clean tech, Bernstein urged conference-goers to remember the technology business during the early 1990s, noting that “things felt horrible then, too.” But he also made the point that things can change rapidly, and that some investors may miss the broader context.

Indeed, Bernstein said that he advises clients not to make decisions based on how things look right now, although he noted that while he compared clean tech to technology in the 90s, he didn’t know if clean tech would become as vibrant a sector as technology has become in the years since then.

“We’re in the early innings of clean tech,” said Bernstein.

At the same time, Bernstein said clean tech investors are looking for several things. First, investors want large, addressable markets, proven technology, offtake agreements indicating certainty on the back end, strong cash positions because cash allows for more leverage, and “capital light” business models.

In addition, strong commercial partners can give investors all the confidence in the world, said Bernstein. Most investors don’t understand technology, he said, but if a company has strong strategic partners, it will boost investors’ confidence. Those items, plus scalable business models and experienced management teams are the components to the perfect cocktail for clean tech investors.

Their biggest turnoffs?

According to Bernstein, those are: Government subsidies, which most people feel are at risk, unproven technologies, and the absence of everything he said made investors more confident.

During the last three or four months, he said, conversations his team has had with strategic investors has ramped up considerably.  And for the most part, large industrial companies want to know who they should be talking to because investments in clean tech companies are “critical” to their success.  He feels that strategic investors will play an important role in the clean tech landscape and that we will see a robust M&A environment as volatility declines and negotiations get easier.

He also mentioned he’s seen a strong and growing interest in clean tech stocks by hedge funds, many of whom were buyers near their market lows last fall.

 

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