Notes from Cleantech Panel Discussions at BioFinance

As mentioned in my prior post, there was a first at BioFinance this year – a panel on Cleantech, and a number of Cleantech presenting companies.

The discussion began with the question: Is cleantech the future of life science? (maybe for investors looking for quicker and more reliable returns on investment?! take a look where the dollars are going! The Cleantech sector is now outperforming other sectors, it is the best sector in US stock market and was up 46% last year.

Deloitte is compiling the “Green 15”, from 150 candidates who have submitted profiles this year. Interestingly, some companies seem to be waivering between life sciences and cleantech – they just can’t decide where they are or where they should be. After all, if they call themselves a life science company, investors approach cautiously … but that’s just me being cynical.

Susan McLean, a Senior Manager of Business Development at the TSX, gave an interesting overview of the sector. The TSX had 94 cleantech issues in 2007, and it is growing. In fact, there was a tripling of activity from 2005 to 2007, progressing well in 2008; there were 2.5 billion shares traded in 2007. It is looking at pure-play companies and integrated companies. Some sub-sectors of listed companies include solar, wind, hydro, geothermal, fuel cell, waste to energy, and others. Now, for the best part – companies even at the $50 million value are getting analyst coverage – something unseen for many “small” companies on US exchanges.

Another panelist was a well-recognized member of Bay Street, Steven Winokur from Canaccord Adams. A few high-level points came out of his talk. He recognized Cleantech to be the best performing sector. There are a number of biotech applications in Cleantech that he mentioned:

  • Agriculture: genetic crop technologies, organic fertilizers, water/waste remediation
  • Nanotechnology for desalinization
  • Biofuels – lignol, syntec biofuel
  • Green Building – a noted possibility

Canaccord Adams puts out a newsletter with quality research reports each month, and they are a highly recommended read by Duncan Stewart, from Deloitte.

Cleantech VCs ready for 2008

According to the National Venture Capital Association (NVCA), VCs are going to continue to pour money into Cleantech areas beyond solar and biofuels. There will be consolidation, more venture-backed IPOs and an eventual over-valuation of the sector. See the NVCA Report.

Will the sector really become over-valued though? With global demand increasing everyday from the emerging market – notably the drastic increases seen in the middle classes of India and China – it is very hard to state exactly where an upper boundary exists. Growth these days is not limited to the US, but it is measured in a global framework that is only beginning to be defined by newer business trends and strategies.

Global warming and energy reserves continue to be an issue that becomes more evident everyday. Until realizable change is evident, the cleantech market will continue to grow and expand at obscene CAGRs. We are only at the dawn of a new era in renewable energy and cleantech; hang on for the ride.

Cleantech Spending

Amidst a flurry of chatter about cleantech and investment from VCs, there is some interesting results coming from a recent report from Lux Research. As the graph at right shows, there is about a 50/50 split between government and corporate funding of cleantech investment, with only a minor contribution from venture capitalists. At least we are seeing an increasing trend …

Below we see the cleantech investment by segment in total, and from VC funding. In the past three years we can see quite clearly that VCs have been investing in energy and sustainability which matches overall spending patterns.

What will 2007 bring? Leave your opinion …

Biofuels Outlook Update

Invest in biofuels today. At least, 2 people think you should — Vinod Khosla of Khosla Ventures, and Dr. Jens Riese of McKinsey & Co. who gave keynote speeches at the World Congress on Industrial Biotechnology and Bioprocessing.

An article from TheAutoChannel discussed this in further detail, but I want to highlight some important points from the post:

In a speech titled “The Role of Venture Capital in Developing Cellulosic Ethanol,” Khosla outlined the range of technologies currently being commercialized to convert cellulosic biomass to transportation fuels. Khosla said that the U.S. Department of Energy’s recent grants to cooperatively fund biorefineries that produce ethanol from cellulose is an acknowledgment that the technology is moving faster than expected. He said that a 100 percent replacement of petroleum transportation fuels with biofuels is achievable, and predicted that ethanol from cellulose technology will be cost competitive with current ethanol production by 2009.

Dr. Jens Riese of McKinsey & Co. also addressed the World Congress plenary session with a speech titled “Beyond the Hype: Global Growth in the Biofuels Industry.” Riese predicted that global annual biofuel capacity would double to 25 billion gallons over the next five years and could reach 80 billion gallons – meeting 10 percent of world transportation fuel demand, enough to replace the annual oil production for fuel of Saudi Arabia – by 2020. According to McKinsey & Company’s model, biofuels can economically replace 25 percent of transportation fuel with crude oil above $50 per barrel. He concluded that the race is on to build a biofuels industry and that companies should invest now.

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Pharma and Biotech Update

Pharma seeking patents on old drugs, and a 40x increase venture capital spent on biofuel-related companies:

An article from CNN talks about big pharmaceuticals looking to acquire new patents on old drugs to fend off generic competition. They are using the creative minds of their in-house, legal teams to try to “work the system” to their advantage… see Big Pharma teaches old drugs new tricks for the full story.

On the biotech side, there was a report today that discussed a 4000% year-over-year increase in the amount of venture capital spent on biofuel companies from 2005 to 2006. The majority of the funds were geared toward genetically engineering enzymes in the production of bioethanol.

India Update: Finance Bill 2007

Some changes are going to happen in the finance communities in India. Their Finance Minister, Palaniappan Chidambaram, recently presented the Finance Bill 2007. PricewaterhouseCoopers put out an extensive report discussing the implications for Ireland, but also discusses many of the changes affecting overseas investments among other tax and investment changes.

India’s venture capital scene is highlighted by a tax pass through status eligible to foreign and domestic funds, as discussed in The Financial Express. What does this mean? It means that they are exempt from tax on income from investments in venture capital undertakings. However, this is not the case for all industries. This tax pass through is only applicable to investments in the IT, biotech and nanotech industries.

Another article in The Financial Express highlights a new clause put into Finance Bill 2007 surrounding gas distribution networks.

“A new clause (vi) inserted in sub-section (4) of Section 80-IA provides that any undertaking carrying on the business of laying and operating cross-country natural gas distribution network, including gas pipelines and storage facilities being an integral part of the network, will be eligible for deduction under the section if it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation established constituted or constituted under any Central or state Act…” (Full text available at The Financial Express)

It isn’t surprising to see the Indian government giving special provisions to gas distribution networks. At the rate business enterprise and consumer wealth is growing in India, much more energy is needed; a more comprehensive network of gas distribution will be required to get the energy where it needs to go. This is backed by a huge demand in automotive vehicles. A news report from Hindu Busines Line mentions that Hyundai Motor India realized a 74% increase in domestic vehicle sales during February 2007 compared to the same month last year. This is complemented by a 60% increase from Honda Siel Cars India (HSCI), and an 81% increase from General Motors. Nice trend. Where are you putting your money?

Want to learn more about doing business in the new Indian economy, consider a few bestselling books to gain some insight:

Put yourself in the know so that you can make the most of your investment strategy whether you’re a day trader, a fund manager or an average joe.

Indian Billionaires

There are 946 billionaires in the world, that’s a lot. As far as developing nations are concerned, China is projected to boom before India. But, interestingly, India leads Asia billionaire club with 36 billionaires; comparatively Japan has 24 and together Hong Kong and China have 41. In today’s economy, those with money – make lots more of it!

A problem in Canada is that there aren’t enough High Net Worth individuals backing venture funds to infuse capital into start-ups and growing companies. In the US, there isn’t that same problem; in California there is over US $13 billion in venture funding to businesses and much of it originally came from those high net worth individuals.

So … what does this mean for Chindia? Well, if these billionaires setup more venture funds in India, my bet is that you will start to see a lot of high-tech companies emerge and compete internationally to fuel the Indian economy. Will China be left in the dust?

Global Warming, Cleantech and Canada

The world is ranting about global warming, and it should be. There is a very real problem, and finally politicians are appearing to try to combat them. Is their rationale money, power, influence or an actual regard for the sustainability of Earth?

In recent news President Bush announced an Ethanol deal with Brazil, which will work to increase the development of ethanol; Brazil produces much of its ethanol from sugar cane. Also today, the European Union heads of state agreed on a long-term strategy on energy policy, which followed agreements made in February 2007, when they agreed to cut greenhouse emissions by 20% by 2020. In Canada, Prime Minister Stephen Harper says that Kyoto targets are unattainable, as the former Liberal government committed to a reduction of greenhouse gases to 6% below 1990 levels … Canada is currently 35% over that mark (Vancouver Sun). So … what is Canada going to do to address this issue? Maybe allocate an increase to the investments in startups that are focusing on environmental biotechnology or cleantech solutions? Wow, that sounds like a good idea!

There are currently a number of Canadian company developing cleantech technologies, but certainly not enough. Of those companies innovating that space, most are grossly underfunded as many don’t even have websites! As the Toronto Star tech reporter, Tyler Hamilton, mentions in his cleantech blog – Clean Break – Sustainable Development Technology Canada (SDTC) , a fund created to finance cleantech startups, invested only $43.4 million on 15 new projects in 2005. The Alberta government is currently experiencing massive surpluses in the order of billions, its about time to start financing cleantech and environmental biotech startups so that Canada can remain competitive in the energy, or “Clean Energy” space in the future. Getting an early foothold in the market just seems like a good idea to me …

Canadian technology happens to be some of the most innovative in the world, so says Len Brody, who’s keynote address I saw at the Canadian Venture Forum. Nice guy, I managed to get myself a signed copy of his book Innovation Nation: Canadian Leadership from Java to Jurassic Park. I haven’t had a chance to read it yet, but if your patriotic and want to find out a little more about Canadian business … maybe grab yourself a copy. In any case, if Canadian technology is so innovative, then INVEST IN IT. The lack of funding at the early stage, is crippling the growth and development of Canadian companies. CEOs are constantly chasing money, to stay cashflow positive and burn rates are minimized, which doesn’t allow these start-ups to effectively execute on their business plans.