Before one can invest in a technology or firm, an investor must first believe in the relevant sector. If this prerequisite is satisfied to a high degree, the next logical step is to decide how to best capture the upside of the sector. In Clean Technology many start up firms hope to be bought out by larger, more established firms. Very few firms will be lucky enough to IPO and establish themselves as an independent player in the market, while many other start ups will unfortunately die a slow, financial bleeding death.
Several years ago I spoke to a Senior Executive for Exxon Corporation. The gentleman I spoke with, while agreeing with much of what I said about the need for Exxon to hedge its position in oil with at least a few of the upcoming alternatives told me that Exxon, in 2003 anyways, had absolutely no desire nor immediate plans to get involved with Clean Technology. After an awkward pause on the call he said, “Why should we risk money and waste time developing something when we have enough cash to just buy whatever we want once it becomes established?” Wow, how could I argue with that- he did have a valid point. Which brings us to 2010:
This blog often profiles technology developments from the investor’s perspective. Many of the VC firms we discuss invest in small start ups in sectors like biofuels, solar, wind and energy storage. But there’s another way to capture these sectors if you want to participate- investing in the large OEM. In fact, Exxon later on did invest $600MM in a biofuel firm called Synthetic Genomics and is “prepared to invest billions more to scale up the technology.”
While we won’t perform an individual investment analysis of each sector and firm here, we can highlight some key options as well as investment pros and risks.
Investing in the large, diversified OEM Pros:
Limited Downside, Economies of Scale/Faster route to mass market, more established vertical infrastructure and brand name recognition
Cons: Limited Upside/No IPO potential, less nimble & dynamic management team & the fact that you are also investing in many other sectors or technologies you may like/dislike.
Flip all of the above pros/cons when investing in the Start Up Firm. Now- a brief look at investment options:
The Start Up vs. the Large, Diversified OEMs!
|A123, Ener1, EEStor, PowerGenix||Panasonic Sanyo, Bosch, Samsung, LG Chem|
|Vestas, FloDesign, Ramco||GE Wind, Samsung, FPL|
|Statkraft, Saltworks, Pentair, Israeli Start Ups||Zenon (GE Water)|
|Joule, Cereplast||Exxon, BP, Shell|