State Of The Nation Update – The New Norms Bite?

My gut is telling me something different is happening. Keep it lean folks, we are heading into choppy water again.

Take the redundancies I’ve seen in the last couple of weeks in FM, environmental and sustainable consulting, outsourced technology, mainstream engineering, internal carbon teams. I’ve seen “walk-aways” by corporates on non-core green related activity, sluggishness in buying “green” and renewable energy progress hampered by team downsizing. There is still a lack of investment and we are now seeing the first signs that the Government cuts are going to bite hard!

Green Bank?

Show me something different and I’ll believe it! Isn’t this the blueprint the Carbon trust but a few more heavyweight names with a sprinkling of Private Equity folks? It’s not going to solve the problem, is it? What happens to the innovation spawning grounds in the latest melee? Same model of return, different underwriter?

Cleantech Investment - What are the new norms?

Yields of less than 7%, ROIs – think more like 5 years now folks!
Venture funding – it’s all about collaboration and circumnavigating Venture land as we know it now.
VCs – for early stage they really mean well past “post revenue” stage – and lots of it!
Fund raising – if you haven’t done it in 6 months, forget it you better do something different.
Equity – start at 60% and if you are lucky negotiate your way back as you hit the milestones.
Typical deal flow scenario - 400 deals reviewed – 4 investments made – those were the figures quoted – but am I wrong in thinking that maybe the view on returns needs to change which might make the ratio different? Maybe the investment community simply haven’t woken up to the new norms yet?

Commercial Property & the CRC

The exodus from inefficient but lovely looking glass and steel buildings is already starting to happen. My prediction is that swathes of office blocks will soon become empty especially where they cannot provide the smart control aspect of carbon management programme roll out.
FTSE or AIM listed company in your property portfolio? What are you doing to help their league table position? Perhaps just taking the rent is now no longer enough – the new norm might be business collaboration?

CRC progress – estimates that 20% of businesses cannot even make registration.
Expecting help from the Environment Agency – hmmmm seems to be a problem when you can’t find the forms on the website even...

Facilities Management Companies – it’s not just about an EPC and some CHP feasibility & engineering consultancy – get your acts together - you are offering a fragmented, disparate service offering – clients want pro-active initiative, joined up thinking and deep traction across third party relationships to resolve the issues they face. I’m hearing reports that FM Companies are not playing ball with energy efficiency partners of clients ... BIG mistake!

For further insight you might like to have a look at my previous post 'Sustainability and The Apollo Effect'.

Skills & Recruitment

Graduate entrants – forget going in to £30K of debt and trekking to Uni unless you aim to come out with a 2:1! 69 graduate applicants for a single job ...employers are being choosy. Boy do we have a problem in the UK with our Course Content – someone’s forgetting the basics & practicals – it’s all theory!

And – this bit is for recruiters only as I know you all read my blog (the intelligent ones will get to this bit – the others will have zoned out by now)! Judging by the amount of recruiters checking out my profile at the mo – everyone in recruitment is piling into this space... wise piece of advice ... if you see a bandwagon, you’ve already missed it. Those of us who have been around for a while, stick together, the flight to quality will be on soon enough.

Prediction – remember the dot.com days? Now imagine that again with only one quarter of the jobs .... I dispute all the figures quoted about green jobs – I think they are overestimated and lots of jobs will mainstream in from related industry or be internal appointments – because of the climate we are in (maybe with the exception of big wind or maybe retraining plumbers!).

You reap what you sow, no matter what business you are in, so expect payback relative to your customer facing investment – and I don’t mean just in cash terms! Everyone is feeling the pressure but I’ve asked myself many times this month - is there a way to be nice and still do business anymore? – or have things got so bad it’s just every man for himself and screw the consequences in the future?

Sustainable business behaviour ... hmmm perhaps a subject for a future blog.

Photo by gluemoon on flickr

EcoSearch "State of the Nation" Update - April/May 2010

It seems we have a lift!

The big question is “for how long?”. I’m sensing an underlying nervousness, what will happen post summer, post election, post Greece?

For a whistle-stop tour of what else I’m seeing;

Finance & Investment in general: -

• Early stage Innovation businesses in cleantech are still suffering from lack of finance although there’s some Creative fund ideas are emerging but these are pre-fund raising and still some months away
• There is still a lack of quality investments – with all investors sticking to traditional post revenue models
• Large scale asset based projects based on “known technologies” are more appealing to investors although a switch to investing in “IP” is being detected for some areas

CRC (Carbon Reduction Commitment):

• Public sector – enquiries are up across the board but delivery is problematical
• FM – large companies gearing up internally to tackle CRC opportunity but clients showing frustration with over-layered FM business models
• Government Knowledge & Advice on procuring these products and services is sadly lacking and will affect the placement of orders

Microgeneration:

• Consumer & Business Demand is growing for product – however manufacturing problems in small wind, supply problems for inverters & Solar PV are issues
• Installer capacity to deliver projects and scale-ability will be an issue in the near term
• Renewables purchasers are frustrated with a fragmented market, product comparison is hard to action, corporate “slickness” is lacking in delivery
• The present MCS accreditation framework appears to be preventing the industry from reaching “sales” maturity
• The present sales & distribution models are problematical – especially in small wind

Business Models:

• The SME Services & Product Sector for Renewables & cleantech is suffering casualties, further casualties are expected from cash flow burn-out crisis
• Specialist & experienced installers will perhaps be prime for acquisition but managing integration will be key for any acquirer
• The Corporate & Utility sector is struggling to internally ratify traditional operating models with highly adaptive, flexible & fast moving emerging markets
• Innovation in the Corporate arena is constrained due to cash flow/focus on core business, smaller workforces & lost internal entrepreneurial ability

Disruption Technologies & Conspiracy Theories?

• … suffered from professional anti-blogging attacks? Well interestingly – now the furore of East Anglia has died down we uncover a rise in this type of activity. So who are the organisations having sufficient funds who have a vested anti-lobbying interest to procure the services of these anti blogging rings.
• And is it wrong to believe that some of those same industries are also buying up IP to shelve “disruption technologies” …
• UK Manufacturing – over-engineered & over-priced? KISS for the future – the Chinese are coming!

These are personal views. I welcome comment, debate and discussion – debby.lloyd@ecosearchglobal.com

Debby Lloyd,
Managing Director, EcoSearch

Image by Micky on Flickr

Cleantech, Renewables & Sustainability Investment - Deal Flow

It’s encouraging to see creative ideas around fund raising for Cleantech, renewable & low carbon technologies – The Founders Club for example “where dealmakers club together” ... looks good, Par Equity - is this the largest Advisory board gathering of the great and good? There’s even talk of some novel and interesting off-grid (pardon the pun) boutique social stock exchanges emerging too.

But they all want the same thing - post revenue / growth potential businesses to invest in - so supply & demand will be a problem for the smaller players wanting quick returns.
This week also saw a Government announcement about the establishment of a Green Investment Bank operating on a commercial basis and involving both public and private sector capital. £1 billion will be raised from the sale of “mature government-owned infrastructure-related assets” (will we have anything left soon – even Dover Docks appears to be up for sale?). This would be matched by £1 billion of private sector investment ... I haven’t seen the detail yet but I’m sure the latter will be a challenge given the state of Corporate businesses today – and again its targeted on investment into heavyweight large complex infrastructure projects.
So – who’s tackling investment into the start up and innovation side of emerging green technologies?

There’s an ever increasing funding gap between early stage “fresh out of the shed entrepreneurs” and “high growth” ready businesses.

Ultimately this will impact deal flow at maturing business “high growth” stage. Inevitably this will get tighter and more and more investors will be chasing fewer deals... that will be interesting as the tables may turn a little perhaps.

By Debby Lloyd
Managing Director, EcoSearch

VCs: Where has the “venture” gone from Venture Capital?

Well here is a question that no one seems able or willing to answer, I’ll throw it open to the investment Universe -VCs, private equity, corporate finance, angel funders, high net worth individuals – be you early stage, late stage (or indeed ANY stage which would be good right now)

Who is REALLY investing over here in the UK – have we closed for Christmas early this year?

From where I am sitting (having watched a colleague bash the phones for the last 4 weeks across a myriad of investor networks on what is – to me – a “no brainer” cleantech medical device manufacturing process) it strikes me that there is an inordinate amount of tyre kicking going on out there, people sitting on piles of cash with no home and not a lot of action.

Today we hear of an investor pulling the plug on a £7m investment because they were feeling “over exposed”.

And at the other end of the spectrum on my desk I can’t find £150K for something that has mass market developing country and remote energy application potential.

Come on people, shame on you! Do I really have to create something totally radical to bypass you lot?

If the anti risk and tyre kicking stance most of you are taking presently continues, how do we progress the low carbon technology agenda? The Carbon Trust and those delightful public sector competition rounds are not going to get us anywhere fast.

My sweeping generalisation about investment land presently is that you are all lacking in creativity, sophistication, knowledge and your models and ideals means you will miss some technology waves. Some spaces are moving so fast by the time you’ve even “gated” the first investment proposal the opportunity has been snapped up into corporate land, is mothballed never to see the light of day, or worse – goes bust before it's started.

The lack of funding supply also means that there is a world of collaboration starting to open up out there that will completely bypass you in future. All those lovely technologies that are scalable and interesting may well find themselves swept up into the arms of a cash rich Corporate doing a nice line in acquiring patents and technologies and sand-bagging for the future. Again, some of those may never see the light of day because we all know corporate cultures aren’t great at “incubating”.

Anyone notice a bit of sweeping up of patents going on of late?

Push back by all means …

By Debby Lloyd

Managing Director, EcoSearch

Fundraising in Cleantech and Renewable Energy

Here are some sound bites from the trench this week on fundraising challenges faced by “Smallco” (the small company working in renewable energy and cleantech). This is the often forgotten £2m and under brigade – of which there are a fair few out there – comprised of both product and services companies.

Smallco in Entrepreneurland is being hindered by the lack of investor appetite for the smaller deal. As a result they are falling between the crack of “too small for the big investors” and “too big & long term to tie up angel money”.

Everyone wants to invest in green

Smallco has to kiss a lot of frogs at the moment. For the smaller businesses preparing for marathon pitching rounds, this means time away from the day job which can be painful when you still need to grow the business.

With relatively few specialists and lots of new entrants rarely are investors truly knowledgeable about the technologies and complexities of businesses operating in this space. So the fund raising process takes even more time as they grapple with the due diligence, alien concepts, opportunities, issues and longer technology development lead times, research etc.

Most people recognise that there is a lack of mature companies around and the “big deals” are rare. The smaller deal dynamics are inherently resource hungry with an owner manager driven situation, and are also a long way from maturity.

Greed and speed factor is high

It is simply not a natural fit with some of these businesses who need nurturing and mentoring as well as cash. This is not the same cycle as dot.com – there is a lot more upfront investment and a slower burn on return. That doesn’t stop the comparisons being made on the investment journey.

So, for angel style investors who wish to spread risk and become involved in a range of cleantech and renewable deals (because, let’s face it, there is risk involved), I can’t help but think there is opportunity here. A venture fund, formed by a collective pool of small-deal VCs, could work together and provide their expertise and contacts along the way. This would strengthen the likelihood of success and in return would create a natural nursery pool to spin into bigger things … plus there would be a lot of fun along the way.

If this sounds like you, call me to discuss, I’ve a number of clients who fall into this category and could be interested in connecting with you.

By Debby Lloyd.

Managing Director, EcoSearch

Image by Perrimoon

Green In The CIty

Does the City really understand Clean Tech and does it need to – isn’t a good deal a good deal whatever class the asset is in?
EcoConnect hosts a series of events called 'Green in the City' designed to connect City decision makers with green technologies. Green in the City is all about making connections to increase business take-up of green technology.

This month’s event took place at the IOD in London and had a fantastic panel of industry experts, chaired by Dan Ilett (Greenbang.com), Steve O’Donnell (The Hot Aisle), Andrew Romans (The Founders’ Club and Georgetown Venture Partners), Anne McIvor (Cleantech Investor) and Douglas Lloyd (Venture Business Research).

The evening was very interesting and is one that people in this industry should go out of their way to attend. Some good points were raised and discussed; below is a collection of key points that I took away from yesterday’s meeting of minds:

The general consensus on ‘does the city understand clean tech?’ was the VC & earlier stage players are getting to grips with the technology well. The wider City is further behind, but does have a level of understanding and is showing more interest.

Clean Tech is a hot investment space at the moment and one the city wants to be a part of. However, this is not Dot.com – Clean tech requires much more initial cap-ex (think of the hardware & assets required and their costs, which can run into millions) and takes far longer to exit. There is no ‘develop a software solution, take to market and flip it’ in this industry.

Looking at the different sources of cash – IPOs are dead at the moment, some clean tech firms floated too early and they are now suffering the consequences.

Also looking at the levels of money going into this space, the exact amount of cash differs depending on the source, but the trend is unmissable­­. 2002 saw $200 million invested in this space, and the following consecutive years saw $400 million, $800 million, $1.2 billion, $2 billion, $4 billion, and anywhere between $8 & $16 billion in 2008! This is total investment from N. America, Europe, India and China.

So there is lots of good news in this industry as a whole, but (and there is always a but!) the UK is in danger of being left behind.

If we look back 20 years, Germany and Denmark etc. identified Wind Turbines as a great technology, researched them and began manufacturing. Now, there is little choice – you have to turn to Europe for a macro wind manufacturer.

The same sets of scenarios are developing in the UK and our government needs to alter this and quickly. Look at the US and Obama’s £800 billion rescue package and how much of that cash is going to be spent in clean tech – this is money that HAS to be spent or the government will take it back! Other European governments are also pouring cash into the space. We need the same support or we will miss the boat.

Overall, the event was a very good and I hope to see more of you there next time!

By Steven Rogers
Sector Lead for Carbon and Renewable Energy Engineering

So what IS REALLY happening across the markets?

Interesting week this week as we wrap up – there appears to be genuine confusion and much scratching of the old grey hairs – and across the widest variety of sectors... could it be caused by some industries bottoming out of “the recession” and lifting quicker than others? Is the pioneering and dogged spirit that got us here pushing us forward inspite of the hurdles and the furrowed banking brow?


Of course, there are still lots of negatives around, lots of conversations of
“hunkering down”, still some major job loss fall outs... and yet... it's almost as if the snowdrops of opportunity are starting to shake off the cold snow and emerge. Albeit cautiously, perhaps a little slowly, but out there are still some signs of greenness (no pun intended). Evidence of planning, priming, gearing ready for action – and evidence that there is money burning a hole in some people’s pockets - but who don’t have their fingers on the right pulse spots to know where to spend it?

Give us a call if you are an investor wanting to jump into this space – we can point you in the direction of people who can put your money to good use!

Image by todd434