While venture investing in clean technology increased 38% globally, it fell 20% in India in 2008. In all $277 million or 3% of the global investment was channeled into Indian companies through 14 disclosed rounds, according to the Cleantech Group, a US-headquartered network of investors and companies with an asset base of $3 trillion. Globally, the venture investment in clean technology came down in the last quarter of 2008, though. While investment dropped 35% in 4Q08 over 3Q08, it fell only 4% compared to 4Q07. Indian figures for the quarter are not available yet.
Explaining the reasons for the drop in investments in India ahead of the rest of the world, Jaswinder Kaur, managing director – India, Cleantech Group, says, “Many VC and PE funds are focused more on existing portfolio companies, which have traditionally tended to be closer to their home operations because the capital providers from the US are looking to stay/invest closer to home.”
Adds Mohanjit Jolly, executive director, Draper Fisher Jurvetson India: “The drop in clean technology venture investment in India is not surprising. Although there is a lot of hype around clean technology, it requires a certain level of sophistication and expertise. Most venture investors in India are early stage technology investors and they are in a learning phase. Going forward, you will actually start to see positive results of this learning phase. The venture capital fund invests in clean technology besides other sectors.
The rising investment in China defies the trend, though. Venture investment in China was $430 million, up by 22% over 2007, sharing 5% of the global investment. Explains Kaur, China has certainly seeded many more clean technology companies and as a result there have been more follow-on rounds in that market. She adds, India needs to have more seed and early stage funds providing capital to start-ups. Even some of the traditional early stages VCs in India are looking at later stage opportunities due to the lack of deal flow.”
Most of the investment in India went into energy generation and infrastructure, particularly solar and wind, followed by electronic waste recycling, energy efficiency and water management. Globally, about 40% of the investment went into solar last year. Though the Cleantech Group is concerned about over-investment in solar right now and is anticipating a pull-back from that market, it expects the costs of solar technology to decrease and result in more deployment. Adds Kaur, “The challenge in India is due to lack of a distribution network, financing strategy, and incentives for consumers/ retailers to adopt this technology.”
While overall investment in India has decreased, new VCs like Kleiner Perkins, Garage Technology Ventures, and Applied Materials have made a foray into the market. Saying that it does not mean that older investors are exiting the country, Kaur adds, “Most VC/PE funds are evaluating their current portfolio, asking their companies to get to profitability sooner and are taking advantage of decreased valuations to assess new investment opportunities.”
The clean technology venture investment is expected to decrease globally this year. Says Kaur, “We certainly expect that 2009 will be a year of transition. We expect the first half of the year to remain depressed due to credit crunch and recession. In particular deal sizes and valuations are expected to pull back significantly, and energy and commodity prices will cease to be short-term drivers.”
At the same time, the expectation is that the clean technology sector will suffer lesser than other sectors. Says Kaur, “There are definite trends that indicate that clean technology is one of the bright spots on the investment landscape: Stimulus packages and tax plans globally are focused on clean technologies, energy efficiency, and green jobs. Secular long-term drivers remain intact because investors dont make decisions based on developments in the past six months.”
It’ll have a positive rub off on India. Explains Dallas Kachan, managing director, Cleantech Group, “A rising tide can lift all boats, so the clean technology economy globally could benefit from Obama administrations clean technology initiatives. Were optimistic that increased US demand for clean products and services will reach clean technology businesses in India. Clean technology is not a uniquely American phenomenon, so it won’t be simply American corporations profiting from it.”
They are not alone in their optimism. Says V Biju Mohandas, India business manager, Acumen Fund, Despite the slowdown, “there is a big opportunity in these segments (cleantech) and those funds that have the money to invest will continue to do so.” Acumen is a social venture capital fund, which invests in cleantech (water, energy and agriculture) in addition to health and housing. He adds, “Government investments in infrastructure will drive growth in these segments. The existing projects may slow down because of the liquidity crunch, but I am pretty certain that the government spending on infrastructure will continue in an election year.’
Giving a prescription for growth in the future, Kaur says, “It calls for working with research institutes and universities to spin-out clean technology companies, creating seed-stage funds to provide initial funding for companies, laying down legislation to kickstart clean technology, providing tax incentives for consumers and retailers, and devising solutions that are suitable for India given the urgency of the situation and the needs of small scale investments etc.”
Source: The Financial Express
Published on 17 Feb 2009