A few items that have caught my eye recently, which have some implications for cleantech investing:
- As this article points out, hedge funds are moving heavily into energy and emissions trading. That's interesting to see, and in part reflects the fact that such trading requires large, heavily capitalized players such as hedge funds (in such nascent markets, you need a lot of capital for counterparty risk purposes, to create liquidity, and to serve as a bit of your own market maker). What's interesting to note in parallel, however, is that hedge funds are also increasingly moving into private equity as well -- both indirectly (fund of funds) and directly. The implication for cleantech investing is the possibility of very vertically-integrated investing -- investing in the technologies used to generate power and earn emissions reduction credits, and then trading those credits. Several years in the coming, probably, but an interesting trend. Will it mean even more valuation pressure in energy venture capital, as the big sacks of hedge fund capital are put up on the table?
- In this posting on SiliconBeat, Mark Heesen of the NVCA is cited as arguing that the venture capital community will bifurcate into two groups -- large, heavily capitalized ($400m+ under management) players with generalist strategies, and smaller, niche-focused players. If true (and it makes a lot of sense), it's another reason why it's good to have a cleantech-focused strategy right now (as opposed to simply dabbling in the industry, with a couple of one-off deals...) -- getting out ahead of the learning curve in our niche, and staying focused.
- Updated 4Q venture returns info from the NVCA shows that 10-year average fund performance now is at 26%, 20-year at 15.7%. As previously discussed, a recent study (out of the Cleantech Venture Network, and co-edited by one of the partners at Expansion Capital Partners, Diana Propper) of venture investments in the cleantech space found suggestive evidence of ~30% IRRs. Not bad, outperforming the overall market...
