Venture investing in Germany

Deutsche Bank recently commented on the new venture grants available in Germany. No doubt, Germany is way behind the s-curve when it comes to venture investing. But what do you expect from an economy and society that is known for its conservative approach to…everything?

To be clear, we are in favour of venture investing as a means of creating new companies that have the potential to be big, one day. We agree with the authors of the Deutsche Bank report that it is not necessarily a question of How Many but rather a question of Quality. Having said that we advocate that there also needs to be a critical mass of start-ups in general before the How Many questions makes a difference. An market equilibrium overall needs to be established that can also absorb failures without stigmatising failing teams.

The US venture market has dealt with that under a ‘contingent contract’ basis. That is, teams get together to work on an idea and only if they manage to attract investment they will fully form. If not the team members move on. It is not unusual to see different teams iterating on a number of ideas, de facto having failed with a prior idea, to see a new company and team emerging.

The US model allows for energetic entrepreneurs to test the market without being held absolutely accountable for ideas that failed to attract funding at that time in history. It often does not mean that the idea was not valid (agreed, sometimes that is the case!), but it may be that the idea was too early for the market and other variables had to come into focus first before an idea has enough substance and a network that enables a faster adaption rate (Think of creating Apps before the iPhone even existed).

It is that clustering of capabilities on the one hand and the network effect (+ structure/regulation) of the local market on the other that allows for ideas and people to come together. Regrettably the latter too often walk away too early and do not give it enough time and chances to see the fruition of their own ideas. But who can truly afford waiting? It is that ‘idle’ time that appears to bug investors. It appears that the question that is forming in investors/society’s mind is “What, you still have not secured funding?” therefore you must be a failure. Regrettably that is utter nonsense. In fact, Germany would do good to overcome that attitude to venture investing as the venture market is required to create exactly that, the next big thing. The benefits of only company making it and the impact it has on people in that region or country is difficult to price in terms of future market capitalization. But surely we can agree that the position momentum may inspire other aspiring entrepreneurs to try too?

We suggest that Venture Investing is the only way to capture the potential upside when good ideas take off. Not every company can be the next Google or Youtube. Even smaller start-ups value as part of the value chain may make a difference later on when other things may fall into their place.


Denmark leads the world in CleanTech

Using both wind and efficiency plays, Denmark leads the world in CleanTech on a GDP weighted ranking according to a recent report commissioned from the World Wildlife Fund and written by Roland Berger.  The ability to produce and sell products and services that reduce CO2 emissions is the key metric used to rank all 27 EU member states, BRIC and G7 countries.

Clean Technology recently passed pharmaceuticals for industry size, and is expected to be the third largest in the world by 2020 at (EUR 1,600 billion.) Between 2000 and 2008, wind grew at 24% and solar at 53%. It is this growth rate, and related demographic factors that form the backbone of the CleanTech investment thesis that this blog strongly supports.

Other notables: 2nd Brazil, 3rd Germany, 6th China, 10th Israel, 19th USA, 20th UK

FT: Which country has the greenest bail-out?

There is an interesting interactive graphics posted on FT (Mar 2009, updated Aug 2009) about the countries with greenest bail-outs. It reported that governments around the world have committed over $512bn of the global economic stimulus outlined so far to green projects, with 22% to be spent in 2009, HSBC estimates.

While we know that this is good for green businesses, there are proponents of a green stimulus who claim that there will be serious consequences if the money is misspent and countries could be committed to a path that has already led to a growth in greenhouse gas emissions. Interesting argument as we know some clean technologies can be capital-intensive such as solar and biofuels – it can take a lot of energy and materials to produce them.

I am somewhat unsure about the title “greenest bail-outs”. Is it really bail-outs or is it really green investments/stimulus package? The authors did not give explanation for the title.

By volume, the “greenest bail-outs” are:
1. China ($218bn)
2. US ($117.2bn)
3. South Korea ($59.9bn)
4. Japan ($36bn)
5. EU ($24.7bn)
6. Germany ($13.8bn)
7. Australia ($9.3bn)
8. France ($6.1bn)
9. UK ($3.7bn)
10. Canada ($2.8bn)
11. Italy ($1.3bn)

By percentage, the “greenest bail-outs” are:
1. South Korea (79%)
2. EU (64%)
3. China (34%)
4. Australia (21%)
5. France (18%)
6. Germany (13%)
7. US (12%)
8. UK (11%)
9. Canada (9%)
10. Japan (6%)
11. Italy (1%)
FT greenest bailout

Kenya to build Africa’s largest windfarm

On 27 Jul 2009, the Guardian reported that Kenya is set to build Africa’s largest windfarm as rains fail and hydropower falters in the country.

Summary of the article:

1. 365 wind turbines to be installed in desert around Lake Turkana in northern Kenya. When complete in 2012, the £533m project will have a capacity of 300MW, a quarter of Kenya’s current installed power and one of the highest proportions of wind energy to be fed in a national grid anywhere in the world.

2. Until now, only north African countries such as Morocco and Egypt have harnessed wind power for commercial purposes on any real scale on the continent. But projects are now beginning to bloom south of the Sahara as governments realise that harnessing the vast wind potential can efficiently meet a surging demand for electricity and ending blackouts. Ethiopia has commissioned a £190m, 120MW farm in Tigray region, representing 15% of the current electricity capacity, and intends to build several more. Tanzania plans to generate at least 100MW of power from two projects in the central Singida region, more than 10% of the country’s current supply. In March, South Africa, whose heavy reliance on coal makes its electricity the second most greenhouse-gas intensive in the world, became the first African country to announce a feed-in tariff for wind power, whereby customers generating electricity receive a cash payment for selling that power to the grid.

3. Kenya is trying to lead the way. Besides the Lake Turkana Wind Power (LTWP) project, which is backed by the African Development Bank, private investors have proposed a second windfarm near Naivasha, the well-known tourist town. And in the Ngong hills near Nairobi, six 50m turbines from Vestas were erected in June and will add 5.1MW to the national grid from August. Another dozen turbines will be added at the site in the next few years.

4. Kenya’s electricity is already very green by global standards. Nearly three-quarters of the state power company KenGen’s installed capacity comes from hydropower, and a further 11% from geothermal plants, which tap into the hot rocks a mile beneath the Rift Valley to release steam to power turbines. However, increasingly erratic rainfall patterns and the destruction of key water catchment areas have affected hydroelectricity output. Low water levels caused the country’s largest hydropower dam to be shut down last month.

5. As a short-term measure KenGen is relying on imported fossil fuels, such as coal and diesel. But within 5 years the government wants to drastically reduce the reliance on hydro by adding 500MW of geothermal power and 800MW of wind energy to the grid. Not only are they far greener options than coal or diesel, but the country’s favourable geology and meteorology make them cheaper alternatives over time. The possibility of selling carbon credits to companies in the industrialised world is an added financial advantage. “Kenya’s natural fuel should come from the wind, hot underground rock and the sun, whose potential has barely even been considered,” said Nick Nuttall, spokesman for the United Nations Environment Programme. “After the initial capital costs this energy is free.”

The greening of Africa

At the end of 2008, Africa’s installed wind power capacity was only 593MW. But that is set to change fast. Egypt has declared plans to have 7,200MW of wind electricity by 2020, meeting 12% of the country’s energy needs. Morocco has a 15% target over the same period. South Africa and Kenya have not announced such long-term goals, but with power shortages and wind potential of up to 60GW and 30GW respectively, local projects are expected to boom. With the carbon credit market proving strong incentives for investment other types of renewable energy are also set to take off. Kenya is planning to quickly expanding its geothermal capacity, and neighbouring Rift Valley countries up to Djibouti are examining their own potential. As technology improves and costs fall, solar will also enter the mix. Germany has already publicised plans to develop a €400bn solar park in the Sahara. “Ultimately for Africa solar is the answer, although [costs mean] we may still be decades away,” said Herman Oelsner, president of the African Wind Energy Association.

Q-Cells to cut 500 jobs

Reuters reported on 13 Aug 2009 that Q-Cells planned to slash about a fifth of its workforce to counter the effects of a price war.

* Around 500 jobs will be cut permanently while short-time work will continue to be in operation at the Thalheim plant. It currently employs about 2,600 staff.
* Q-Cells will review all investment projects.
* It expects the restructuring to cut production costs by 25%, necessary after Asian rivals cut prices.
* Q-Cells made a net loss of €696.9 million in H1 2009, caused by further writedowns on the sale of its stake in REC in May 2009.
* Q-Cells compatriot Phoenix Solar also said on 13 Aug 2009 that first half results were hit by price pressure but will stick with its 2009 forecast sales of €520 million.
* First Solar, which rivals Q-Cells as the world’s biggest maker of solar cells, has so far proved to be coping much better with the crisis (comment: why so?)
* The price war, mainly triggered by Asian competitors, has already forced some European players such as Ersol and REC to either consider or to already move production abroad.
* Q-Cells’ other major rivals, Sharp Corp and Kyocera, have remained relatively unscathed by the crisis, as their cell business only accounts for a small part of their businesses.
* Q-Cells CFO, Nedim Cen said that it has sufficient liquidity, with €520 million.

Here are five facts about the German solar industry:
* The German solar market is expected to become the world’s largest in 2009, overtaking Spain, as measured by megawatts of installation, according to industry association EPIA.
* Germany is home to industry bellwethers such as Q-Cells, one of the world’s largest maker of solar cells, solar inverter maker SMA Solar, and SolarWorld, which makes silicon and solar panels.
* Germany’s 15,000 solar companies (comment: 15,000?! who are they?) employed 70,000 people in 2008 and is expected to rise to 200,000 by 2020, according to German solar industry association BSW.
* Sales in the industry amounted to about €7 billion ($9.9 billion) in 2008, while the export quota of photovoltaic companies was 46%.
* According to BSW, photovoltaics will account for 1% of Germany’s power consumption this year, with that share seen rising to 25% by 2050.

Top PV Companies in the world

The following table is the top 10 photovoltaic device suppliers in 2008:

IC Insights 2008 Solar Ranking Table

Another research firm, iSuppli, ranked the top 20 global solar companies in Q1-2008 by production in 2007 and by announced production capacity 2010:

Top 20 PV_iSuppli
Top 10 Suppliers of PV Manufacturing Supplier in 2008 by VLSI Research:

VLSI PV Mfg Equipment Top 10 Suppliers

The following is summarized from IC Insights Research Bulletin 2009 report Solar Energy: Growth Oppor­tu­ni­ties for the Semi­con­duc­tor Industry:

1. Japan’s sup­pli­ers of solar PV cells and pan­els, which dom­i­nated the indus­try for many years, slipped in the sup­plier rank­ings in 2008.

2. Sharp was the No. 1 PV device sup­plier in 2006 and for sev­eral years before that but was overtaken by Q-Cells and Sun­tech Power Hold­ings in 2007. First Solar blew past both Sharp and Sun­tech, push­ing Sharp down to No. 4 in 2008 rankings, which are based on peak-megawatt value of the PV devices pro­duced and sold by each supplier.

3. Sharp was not the only Japan­ese sup­plier whose posi­tion declined in the 2008 rank­ing. Kyocera Corp. slipped from the No. 5 spot in 2007 to No. 6 in 2008. Sanyo, which was No. 7 in 2007, did not make top 10 in 2008. Mit­subishi also dropped in the ranking.

4. Future rank­ings are expected to show sig­nif­i­cant changes due to small incre­ments that sep­a­rate the top play­ers. The top 4 sup­pli­ers all achieved mar­ket­ share (based on MW sales) between 8.0% and 9.5%. A sec­ond tier of sup­pli­ers, formed by those ranked No. 5 to No. 10, have between 4% and 5% mar­ket­ share.

5. Other than First Solar, the ris­ers in the top 10 list were exclu­sively sup­pli­ers based in China or Tai­wan. Although Sun­tech slipped from No. 2 to No. 3, JA Solar Hold­ings rose from No. 10 to No. 7 in based on 109% growth in MW sales in 2008. Yingli Green Energy Hold­ing advanced from No. 9 to No. 8 on the strength of 93% growth.

6. In Tai­wan, Motech Indus­tries mov­ed from No. 6 to No. 5 thanks to a 67% increase in MW sales. But per­haps more impres­sive was the per­for­mance of Gin­tech Energy, which equaled First Solar’s growth of 144% in MW sales in 2008, pulling itself up from No. 12 to No. 8.

7. Gin­tech, like JA Solar, makes solar cells only; these 2 com­pa­nies fol­low the busi­ness model of top-ranked Q-Cells, which has only recently started to diver­sify beyond pure-play PV cell man­u­fac­tur­ing. Other sup­pli­ers are involved in panel man­u­fac­tur­ing, sys­tem instal­la­tions, and other aspects of the solar value chain.

8. No. 10 Solar World AG, a Ger­man com­pany that holds the dis­tinc­tion of being the biggest man­u­fac­turer of PV cells in the U.S., thanks to the recent expan­sion of its plant in Hills­boro, Ore­gon.

9. A U.S.-headquartered cell man­u­fac­turer, Sun­Power, almost made it into the top 10 in 2008, but Sun­Power man­u­fac­tures its cells in plants in the Philippines.

Comment: Chinese and Taiwanese rise up in the ranking as they are able to compete on cost, unlike Germany and Japan. I post here a map of PV manufacturer locations in China. Not sure how dated is the map but if you’re looking for JA Solar, you should look for “Jing Ao Solar” in the map:

Locations of Major PV Manufacturers China

Siemens Venture Capital

About: Munich-based Siemens Venture Capital (SVC), the central venture capital organization within Siemens, invests in early-stage technology companies and established growth companies, focusing on the energy, industry and healthcare sectors. In this way, SVC identifies innovative solutions from which Siemens can profit and plays a key role in Siemens’ global innovation network. To date, the company has invested more than EUR 800m in over 150 companies and 40 venture capital funds. In addition, SVC advises the German Siemens pension funds on their private equity allocation. It is in this context that SVC has launched the venture capital fund of funds Siemens Global Innovation Partners I. Siemens Venture Capital is represented in Europe, Asia and the US and is part of Siemens Financial Services.

Key Personnel:
Dr Ralf Schnell, CEO
Thomas Kolbinger, Managing Director

Comment: There is no cleantech sector specified in the portfolio but its news mentioned green investments: “India’s Transparent Energy Systems is the twelfth company in the area of energy and environmental technologies in which SVC has invested. The acquisition of this stake boosts to above 30 percent the share of companies in SVC’s portfolio that are active in environmental technologies.”

Therefore, I made this selection of 12 companies that are possibly in SVC’s green portfolio based on their description (those in bold are definitely green): Beijing PowerU Technology, BPL Global, EnOcean GmbH, inge watertechnologies, ISE Corporation, Maxxtec AG, Powerit Solutions, Prenova, SmartSynch, Thermosensorik GmbH, Transparent Energy Systems, Zolo Technologies.

News: Siemens launched its first venture capital fund of funds in Feb 2009, Siemens Global Innovation Partners I GmbH & Co. KG (SGIP I) will invest in VC funds worldwide as well as select growth capital funds with the aim of generating outstanding returns for its investors. The fund has already secured nearly half of its target volume of USD 200 mn through its first closing with the participation of the German Siemens pension funds and two leading European insurers. Siemens Venture Capital GmbH (SVC), the central corporate venture capital organization of Siemens, is SGIP I’s General Partner.

About two-thirds of the fund will be invested in venture capital funds and select growth capital funds in North America. Venture capital investments and select growth capital investments in Europe, Israel and Asia will make up the rest. The target portfolio will include about 20 funds.

The portfolio in this fund is here:

* Allegis Capital
* Band of Angels
* Carmel Ventures
* Draper Atlantic
* Edison Venture Fund
* Galen Partners
* Glenmount International
* Lightspeed Venture Partners
* Masdar Clean Tech Fund
* MedVenture Associates
* Mission Ventures
* NGEN Partners
* Origin
* Paladin Capital Group
* Portview Communications Partners
* STAR Ventures (STAR)
* Techinvest (fka innotech)
* THLi
* TTP Ventures
* TVM Techno Venture Management
* Venture Strategy