On January 15th, law firm Hodgson Russ hosted a cleantech event in New York. Their keynote speaker was Edward J. Sappin, CEO of cleantech investment firm The Willowbrook Company. He gave a thoughtful presentation on what investors and entrepreneurs should expect in 2013. Here’s a brief rundown of his key points:
- Don’t expect much in the way of new federal legislation. We already saw the best come out of Washington in 2012 – including the extension of the Wind Production Credit and the JOBS Act, which enables start-up companies to raise capital from non-accredited investors.
- Early-stage capital will be extremely hard to find. Venture capitalists are no longer taking a five- to 10-year timeline on their investments, and several big venture capital players that set up cleantech teams have pulled back from the sector. Early-stage cleantech companies that raised their first investment shouldn’t expect follow-on rounds anytime soon and will need to make every dollar count to avoid getting stuck in the “Valley of Death.”
- Management teams need to focus on tangible milestones. In this difficult environment for capital, investors and business partners expect to see exactly how your company expects to move from concept to commercialization. In addition, customers will expect to see a product pipeline. In his experience, many start-up management teams can articulate their big ideas, but don’t always have a clear vision of how the company will achieve them.
- Look for more project finance players doing renewable energy deals. Clean energy financing projects will move from a corporate finance model to a project finance model, as project finance players have lower return expectations. He expects Wall Street, which moved away from the sector, to start doing more renewable energy project finance deals this year and he believes the addition of “green banks” in the U.S. will help jumpstart growth in the sector.
- Investors and entrepreneurs need to tap the global market for growth. Early-stage companies should look abroad to raise capital, develop partnerships and find new talent. He mentioned that Chinese and Indian companies are looking to do deals abroad, and added that there are interesting new cleantech business models being developed in emerging markets and imported to the U.S., many of which represent compelling investment opportunities.
The cleantech areas he feels are set up for major investment growth in 2013 are:
Water – there are a lot of young innovative companies in this sector, particularly in Israel and India.
Energy efficiency – these companies will start to be financed appropriately, such as public-private partnerships, which will create opportunities.
Merchant solar – he feels that investors will be more willing to take risks as solar reaches grid parity in more areas.
Cleanweb – clean energy, social media and internet opportunities will continue to grow, and we should see some major company successes in this space in 2013.