Responsible Investor

Could the crisis become a vintage era for clean tech private equity deals?

Attractively priced deals and long-term ‘green’ stimulus make market look attractive despite the doldrums.

The clean tech private equity sector has been hit by the financial crisis just as other sectors have been. What started mainly as a liquidity crisis, whereby much less or no capital is available to finance operations or future growth, has, as a result of the liquidity crunch, rapidly turned into an economic crisis with many countries having fallen into recession at the end of 2008. In order to more closely examine the impacts on the clean tech private equity sector, we believe it is vital to distinguish between the more short-term oriented effects of the liquidity crisis and the more mid-term effects of the economic crisis.
For the shorter-term, the lack of capital means that clean tech companies will be hindered in their growth. Many are in need of either equity to further expand operations or debt to start and roll out projects through which their technologies are applied. Clean tech companies with an urgent need for capital could see their existence endangered. For others, it means they will have to take a critical look at the available amount of capital and their own cost structure. Already we see clean tech companies down- or right-sizing (e.g. Tesla, OptiSolar, SunTech).

One of the first companies in the clean tech sector to really hit trouble is Norwegian electric car manufacturer Th!nk, which suspended vehicle production and laid off 50% of its employees in December 2008.
The fact that many clean tech companies have already raised substantial amounts of capital in the last two years helps. Furthermore, many clean tech private equity fund managers have raised a large amount of capital through new funds. Examples include Element Partners, RockPort Capital, Kleiner Perkins and VantagePoint. This means that there is still a large pool of capital available. The fact that this pool will be used more prudently and to only (re) finance the real clean tech stars, could in our opinion be beneficial to the long-term returns of clean tech investments. It is important to note that most clean tech private equity investments are venture or growth capital investments rather than buyout transactions. This implies that the amount of leverage used is usually zero or minimal. Only very few clean tech private equity funds use leverage to purchase companies. This means that the increased cost of debt financing or the difficulties regarding refinancing or recapitalizations do not play

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