IRR For Private Cleantech Investments Not Too Shabby: Report

Cambridge Associates, a global institutional investment advisor, has developed a quarterly report to evaluate the company-level performance of private investments in the cleantech sector.

Statistics from the inaugural report were pulled from Cambridge’s proprietary performance database of over 5,000 private investment funds. Researchers mined more than 65,000 investments in its database and were able to pinpoint 1,222 clean tech investments across 644 private companies.

Cambridge defines the clean tech sector as companies and projects that develop non-fossil-fuel energy sources, promote efficiency, conserve resources, replace existing processes with green alternatives; recycle waste; or provide a product or service that improves the environment.

The sector definition is broad, and includes four sub-sector groupings: renewable power manufacturing, renewable power development, energy optimization, and resources solutions. Some subsectors include solar and wind power technologies; technologies that generate electricity from fuel cells or waste capture; biofuels and biomaterials; processes that finance, install, manage, operate, or own renewable power generation projects; smart grid technologies; sustainable mobility technologies; waste and recycling processes; and technologies that protect and restore natural ecosystems or create sustainable agricultural practices and techniques.

Clean tech funding in the study represents more than $21 billion in capital drawn from 302 venture capital funds and 106 private equity funds.  $15.8 billion of the money was invested in U.S.-based companies. Investments in developed markets outside the U.S. accounted for 17.5% of the sample ($3.7 billion) and investments in emerging markets accounted for 8.4% ($1.8 billion). Of the sample, 89% received initial funding since 2005.

Across the four major groups, 31.5% of capital went to renewable power manufacturing investments, 30.7% was delivered to renewable power development investments, 22.4% infused energy optimization investments, and 15.4% went to resource solutions investments. The four groups achieved a positive gross internal rate of return or IRR, the strongest being renewable power development at 11.4%.

US–based companies generated a gross company-level IRR of 7.0%, while companies based outside the United States have generated a gross IRR of 4.8%. A more limited sample of 94 emerging market investments has performed better than US and global developed investments.

There is a caveat: 89 percent of the investments in the sample received their initial funding since 2005, meaning this is a young industry when compared to the fund life for a venture capital or private equity fund is generally 10 to 12 years. The report urges caution when using the data to draw predictive conclusions.

To read the entire report, click here

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