What Investors Look for in the Cleantech Sector KR NoCo 2011-11-22
Transcript of What Investors Look for in the Cleantech Sector KR NoCo 2011-11-22
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© Nomura International plc
Nomura Code Securities Limited
Funding & Pricing Panel
What investors look for inCleantech
Guardian Cleantech Summit22nd November 2011
Ken RumphNomura Code
[email protected] 776 1242
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Nomura Code
Nomura Code is a specialist investment bank,
−Wholly owned subsidiary of Nomura, the global investment bank headquartered in
Japan
−Specialised in growth companies: cleantech, life sciences and technology
We provide
−Equity research on publicly listed and privately owned companies for our investorclients
−Corporate finance advice and equity capital raising services: private and public (Pre-IPOs and IPOs)
−M&A advice
What’s selling with investors currently?
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Not just renewables …
Cleantech is often focussed on small subset of energy generation:renewables, particularly solar…
The key in energy generation should be low-carbon (there is no ‘no-carbon’)
hence include nuclear
‘clean coal’? CCS
plus perhaps biofuels? Sustainability still a big question mark
− Food vs. fuel can’t be solved with ‘non-food crop’ and ‘marginal land’ arguments
− Impacts on pesticide/fertiliser pollution, water use
Fuel cells, Hydrogen
Enabling technologies in energy storage, smart grid, low-carbontransport …
Energy Efficiency: with the caveat of rebound effects
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Focus on resource efficiency, as well as energy
Resource as well as Energy Efficiency (including recycling, wastemanagement)
… there needs to be a global focus on efficiency− Investors prefer the economic and regulatory drivers for efficiency, vs. the
subsidy-dependence of solar PV in particular
− Process efficiency stocks in London and elsewhere have performed well
− Smart grids (power and water) attracting attention from investors and
corporates
Water is a growing theme for investors
− Shortage of fresh water (desalination, recycling, efficiency/leaks)
− Waste water treatment
− Water purification
− Overlap with agricultural/irrigation demand – another theme for investors
− Fitting in with these trends is important for smaller/earlier stage companies togain attention from investors
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UK Feed-in Tariffs: the chill sets in
The highly attractive returns on solar, and thelikely consequences, were visible even beforethe first panels were installed
“We expect a rapid growth in demand to over100MW in 2011, a year ahead of expectations,and so a likely tariff review in 18-24 months”.4th March 2010
But the pace of reviews and speed ofimplementation have been for practicalpurposes, retro-active, and cast a chill over allgovernment policy, across renewables andother fields
What was the UK plan? Did we have one?
Policy changes (notably also in Spain) haveadded to a general investor wariness overrenewables
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Not all predictions went so well….
“Blue, Red or Yellow but all Green”.
Maybe not…
We saw common themes in promotingenergy efficiency, and the threat ofConservative planning policy…
But expected strained public financesto lead to green taxes and not to cutsin renewables support (funded via billsnot taxes)
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Investors can be attracted to cleantech: link to global themes
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Pitching: Less Greenery. More Greenbacks
Focus needs to be on commercialisation – not technology or
green credentials.
Technology: keep it simple. You can always expand later.
Who is going to buy your product/service?
Why? At what price versus competition? What are the economics forthe customer?
How will you find and convert your customer? Do you understand thedistribution channels, and the motives of the participants? Why will theybuy from you, a small early stage company?
Market segmentation may be appropriate? Niche sales first, versus the
mass market? Who is your head salesperson?
Timetables – enthusiastic but realistic
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Cleantech – pros and cons
Pros
A strong theme, with specialist and generalist investors’ attention
But specialists want the same things as generalists – a good investmentcase
Generalists are wary of (past) hype and overvaluation
‘Saving the world’ alone will not be a sufficient case for investment
Making money alone will also not be sufficient (in the environmental,cleantech space)
Cons
‘Cleantech’ or environment is not a well-defined sector
Investors will want to understand the specific drivers for a business
Most investors in small- and mid-sized IPOs are generalists, so
education about the drivers and the business is always needed Is this a regulation-driven business, supported by subsidies, or
influenced by market prices (carbon, fossil fuels) – each will have itsspecifics and vulnerabilities
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Cleantech Funding and M&A conditions
Venture Capital & Private Equity flows arelarge
But dominated by major corporate buyouts
VC-type funding is a small portion
VC/PE, IPOs and M&A all show similar
patterns, tentative signs of recovery during2010
Figures often include utilities or generalindustrials as cleantech
Trends in VC/PE, M&A and IPOs in Cleantech
VC vs. PE investment
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$0bn
$10bn
$20bn
$30bn
$40bn
$50bn
$60bn
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ytd
PE - buy-outs, etcPE - expansion capital
VC
$0bn
$20bn
$40bn
$60bn
$80bn
$100bn
$120bn$140bn
$160bn
$180bn
$200bn
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ytd
VC/PE
M&AIPOs
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Cleantech Funding and M&A conditions
Although ‘Solar’ has been a large part of VC funding, this has been dominated by solar PVutilities/park developers, and by solar PV technology companies
Source: Bloomberg New Energy Finance
Share of 1996-2010 VC funding by sub-sector
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Solar
27%
EE transport
11%
PowerStorage
8%EE built
environment
10%
Fuel Cells
5%
EE digital
energy
8%
Other
6%
Biofuels
10%EE supply
side
5%
EE industry
2%
Wind
4%
Biomass &Waste
4%
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Conclusion
Understand the (disastrous) context
Cleantech isn’t just solar and wind
It is about the money (apologies to Jessie J)
Regulations and Efficiency, not subsidies, are selling
Link to other themes (energy security, BRICs, water, agriculture,demographics)
Green taxes should be a driver
We are in a policy learning phase – but could learn faster and better
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Ken Rumph
Ken Rumph joined Nomura Code in September 2009 having built Clear Capital/Noble’s climatechange coverage between 2007 - 2009.
Ken specialises in energy and resource efficiency, including water, waste and recycling.
Ken graduated in Natural Sciences from Trinity, Cambridge and had held roles as a fundmanager and buy-side analyst at Scottish Amicable and as a sell-side global building materialsanalyst at UBS and Merrill Lynch.
Repenting his emissions-intensive ways, Ken undertook a masters in EnvironmentalManagement at Cranfield in 2006/7 and is a member of the Institute of Environmental
Management and Assessment