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Archive for February, 2010

In 2001 Gerbsman Partners predicted that the Internet would be a “Dot Bomb” and in 2005 forecasted that Wireless would be the “Next Dot Bomb”. Gerbsman Partners also forecasted the coming of a major “Black Swan and Tipping Point” event in May 2007. Now, in February, 2010, Gerbsman Partners is prognosticating, “Cleantech, the next Bubble to Burst”.

In any typical venture capital/private equity investment cycle, the investors re-evaluate their investments at the 2-3 year mark. Cleantech investments have either reached that milestone or or will be there at some point during 2010. It should be expected that most Cleantech investments that were formed 2-3 years ago require additional capital this year to maintain their viability.

Since the majority of Cleantech capital has been provided by government funding, mainly to major companies and based on Gerbsman Partners 30 year track record for maximizing enterprise value of venture capital backed Intellectual Property companies, we predict a high percentage of Cleantech companies will fail to obtain the necessary additional funding to survive. Specifically, in this challenging capital and economic environment, we expect a higher rate of Cleantech companies failing. Gerbsman Partners proprietary and proven “Date Certain M&A Process” presents a viable alternative for equity sponsors to maximize the enterprise value of their Cleantech portfolio companies.

While the Cleantech industry has enjoyed significant growth and increased funding over the last few years, there are warning signs that a significant drop off is on the horizon. Gerbsman Partners has identified the following warning signs and symptoms:

  • Total Venture Capital investment in Cleantech decreased to $5.6 billion in 2009, down from $8.4 billion 2008, and the lowest level since 2006.
  • Additionally, North America´s share of clean technology venture capital was down from 72% in 2008 to 59% in 2009, a four year low.
  • 2009 saw the lowest number of IPO´s in nearly a decade.

In addition to these industry-wide trends, there are some sector specifics:

Solar Power:

  • Solar panels, as well as other solar technology, experienced a steep price drop in 2009 and that trend is expected to continue. While that´s good news for consumers, suppliers now have too much manufacturing capacity and, thus, supply has vastly overtaken demand.
  • The rapid expansion and resulting over-supply caused a sharp rise in start-up failures in the 2nd half of 2009, along with several disastrous IPO´s.
  • While cost of production has dropped, issues with solar power storage methods continue to hamper the industry. Between 30 and 45% of all Photo Voltaic solar power is lost before it can be used, prompting some investors to look elsewhere for efficient renewable energy.

Biofuels:

  • While some advances in research were made within Biofuels in 2009, most forms of first-generation biofuels are uneconomical, even after substantial government funding.
  • Policy barriers continue to slow this sector´s growth. Government requirements and restrictions on biofuel research and development have increased every year for the last decade with no change in sight.
  • At the heart of the government´s policies lies the “food vs. fuel” debate (diverting farmland or crops for essential biofuel production space), posing strong opposition to continued innovation from lobbyists and special interest groups.

Wind Energy:

  • Wind turbine manufacturing dropped between 15-20% in 2009, compared to the prior year.
  • New project announcements were also down by 20% in 2009, with few domestic programs on the horizon. Without these new projects, a boom within the sector seems highly unlikely – especially when considering that wind constitutes less than 2% of the total US electricity supply when functioning at current total capacity.
  • Inadequate transmission capacity remains a significant barrier to further development, with nearly 300,000 MW of wind capacity held up in a pipeline bottleneck due to transmission limitations.

Geothermal Power:

  • Geothermal power is twice as expensive as Solar Power and three times as expensive as Wind Power. This discrepancy is mainly due to the comparative difficulty in cultivating Earth´s heat – deep drilling is expensive and no new, viable cultivation methods figure to make a splash anytime soon.
  • To be both usable and economical a drilling site must have hot magma near the surface, an adequate volume of relatively pure hot water or steam, a surface water source for cooling equipment, and close proximity to power transmission lines. So, even in promising areas, economically usable sites are few and they are difficult to locate.
  • Private investing in Geothermal Energy ranked 8th among Cleantech sectors in 2009 and hasn´t placed in the top five in the last decade.

Preservation of Enterprise Value

During the Internet/Technology meltdown and the recent financial crisis of 2008-09, Gerbsman Partners maximized enterprise value for under-performing, under-valued and under-capitalized VC technology, life science and medical device companies and their Intellectual Property through:

  • The stabilization, wind down/orderly shut down of 60 companies through the sale, M&A or joint venture of the company’s Intellectual Property.
  • The termination/restructuring of over $ 790 million of prohibitive real estate, equipment lease and/or sub-debt obligations.
  • Crisis Management services that minimized potential stakeholder exposure and insured that management, stakeholders and Board of Directors met their fiduciary obligations.

In January 2010, Gerbsman Partners again identified similar characteristics in the Cleantech arena.

Domain Expertise – Cleantech

Gerbsman Partners marketing, research and focus in the Cleantech sector includes organizing meetings and establishing relationships with leading Manufacturers, Service Providers, Developers and Equity Investors. As a result, Gerbsman Partners has significant Domain Expertise in the Cleantech area.

Besides describing the current status of the Solar Power, Smartgrid, Geothermal and other Cleantech markets, our research has uncovered a number of challenges in the Cleantech industry.

Examples Include:

  • The oversaturation of the Solar Panel and Energy Efficient Lighting markets, where previously thriving products became so cheap to produce that the resulting oversupply set off a chain of mergers and bankruptcies for companies manufacturing them (Former success stories OptiSolar and SunEdison chief among them).
  • The price of natural gas remains at an all-time low. Historically, when natural gas prices are low, investment and research within Cleantech plummet substantially, as was the case in ´09.
  • Cleantech relies heavily on government funding. The US Government provided $67 billion in stimulus money, loan guarantees and grant programs to renewable industry in 2009. While the funding helped with the lack of private money, there is no guarantee that the government´s aid is sustainable in the current economic environment.

Gerbsman Partners and its Board of Intellectual Capital are available, if appropriate, to strategize and develop action plans for maximizing value of challenging Intellectual Property based technology, life science, medical device and now Cleantech companies.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. In the past 60 months, Gerbsman Partners has been involved in maximizing value for 60 Technology and Life Science companies and their Intellectual Property and has restructured/terminated over $790 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in Boston, New York, Washington, DC, Alexandria, VA, San Francisco, Europe and Israel.

For more information, please contact Steven R. Gerbsman at: steve@gerbsmanpartners.com

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Here is some interresting thoughts from CNET.

“With investors getting smarter and start-ups getting bought, the mood is brightening in green tech. But the high-profile companies seeking to go public this year have some industry watchers talking bubbles.

For proof, investors point to the spate of planned initial public offerings, including electric car maker Tesla Motors, solar company Solyndra, and biofuels maker Codexis. Smart-grid company Silver Spring Networks and biofuels maker Amyris are rumored to be on deck.

Long-term trends may favor innovative green companies, as concerns about energy resources and the environment grow. But that doesn’t mean this year’s leading companies can navigate the complex regulatory and financial environment to become successful companies, said Jack Robinson, founder of Winslow Management, which focuses on environmentally oriented public companies.

“Valuations seem to be ahead of themselves,” Robinson said. “Some of the people [in venture-backed green-tech companies] don’t have the history and don’t understand the pitfalls that need to be addressed from a technology, market, regulatory, and political point of view.”

An example of a company he considers highly valued is lithium ion battery maker A123 Systems, which went public last September. In addition to raising $371 million, it raised the hopes of many other young energy companies.

Investor Rob Day of Black Coral Capital did an analysis of four recent IPO filings in the green-tech area and was concerned when he found that their unofficial revenue numbers were far below the amount of money put into them.

Nonetheless, even early misfires don’t mean investors should write off the whole sector. The high-profile companies that have filed to go public aren’t the best indicators of what’s to come as many other companies could raise funding through private equity sources, rather than tapping the public stock market, Day argued.

“My worry is that if these IPOs are perceived later on this year as having been unsuccessful, it’ll once again set back the entire clean tech venture industry, because of the example it sets in terms of lack of (financial) exits,” he wrote.

Netscape moment ahead?
Even with the worries over financial returns for investors, there’s a reason that IPO hopefuls have gotten as far as they have. It’s widely recognized that Tesla Motors and Solyndra, for example, have developed innovative technologies. Tesla’s $109,000 Roadster has become a darling among the well-heeled and its planned Model S sedan, priced at about $57,000 before tax credits, has legions of fans even though it won’t be built for two more years.

Solyndra has developed a solar collector designed specifically for flat commercial rooftops. In its first installations, the company touts how quickly these collectors, which use curved thin-film solar cells, can be installed, which brings down the overall system cost.

As with many green-tech upstarts, though, both companies have big-time challenges. Solyndra and Tesla borrowed hundreds of millions of dollars from the U.S. Department of Energy to build manufacturing facilities and they face powerful competition, in the form of incumbent automakers and low-cost Chinese solar panel producers.”

Read the full article here.

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Here is some interresting pointer around Cleantech and Investments from Techpulse 360.

“U.S. venture firms are taking a more circumspect view of clean-tech investing. Less flash, more focus on profits.

That could lead to more start-ups trying to build businesses with less money.

According to a recent survey, substantial sums of money continue to flow into the industry. Ernst & Young reported Monday that $2.6 billion went into clean-tech start-ups last year, a noticeably more optimistic assessment than last month’s MoneyTree survey, which posted a figure of $1.9 billion. The higher sum suggests VCs were significantly more active last year than may have been thought.

The E&Y work also uncovered a second detail that didn’t show up in the MoneyTree study – which was conducted by PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters.  While investment dollars fell 45 percent in the fourth quarter, the number of deals were up – 21 percent to 62. More deals, smaller sums of money per company, more room for profits.

The MoneyTree work found that the number of deals in the quarter fell to 47 and that overall dollars declined 58 percent.

It is hard to know which of the surveys is more accurate. But the prospect of venture capitalists funding more companies at lower dollar values is interesting to contemplate. It suggests funds are seeing clean-tech investing more like they see information-technology investing: put a little money in, expect a lot back.  This prospect may encourage more VCs to take part.”

Read the full article here.

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Here is a good article from SF Chronicle that sheds some light on Apple and its renewed strategy on Mobile devices. With its launch of iPad, as well as the consious sidestepping from flash, a new and clear focus on iTunes and Appstore becomes much clearer – the focus on being the entertainment and content provider of consumer entertainment, and controlling the accesspoints secures large revenues from the convert. The larger question is if there are new areas previously untapped in this strategy that represent next level. With clear focus on casual consumption, everyday content and easy access, I have problem seeing next product line within this strategy.

– Patric

“Apple’s recent unveiling of the iPad was primarily a product announcement aimed at priming the pump for consumers, developers and content owners.

But for the notoriously secretive company, the iPad event provided observers with a glimpse of the company’s growing ambitions and strategies.

By trumpeting its own chipset for the iPad, passing on Adobe Flash software and putting even more emphasis on its iTunes system, Apple appears intent on tightening its command over the user experience and delivering a distinct vision of mobile computing, Internet connectivity and media consumption.

But perhaps the most obvious upshot of the latest unveiling was Apple’s continued recognition that its future, unlike its origin, is tied to mobile devices. Three years after dropping the word “computer” from its name, Apple’s CEO Steve Jobs said the company’s annual revenue of $50 billion from iPhones, iPods and MacBook laptops make it the largest maker of mobile devices in the world.

“Apple is a mobile devices company – that’s what we do,” said Jobs, during the iPad event.

Tim Bajarin, president of technology consultancy Creative Strategies, said Apple recognizes that the computing landscape is expanding to a model in which everyone carries around an Internet device. With the iPad, Apple is seeking to shape and stay ahead of that future.

“Apple’s role is to bring digital technology to the masses,” said Bajarin. “They don’t believe it’s restricted to a desktop or a phone – it should come in all types of devices.”

While the iPad represents a new hardware market, some observers see the device as expanding Apple’s business in services and content delivery.

“In 10 years, Apple will be just as much of a services and a software play as a device manufacturer,” said J. Gerry Purdy, an analyst with MobileTrax, a mobile research firm. “I think that gives them a tremendous playing field opportunity.”

Making chips itself

Apple’s introduction of its own chipset for the iPad – called the A4 – suggests that the Cupertino company is even more focused on the marriage between its hardware and software, eschewing third-party chips that are used by most rivals.

Nathan Brookwood, an analyst with Insight 64, questioned whether Apple’s chipset will outperform rival technology from Nvidia or Qualcomm. But he said the approach can result in some savings if it’s applied on a significant scale. And it allows the company to be less dependent on outside suppliers.

But perhaps most importantly, it gives Apple a way to tune its chips to fit the exact needs of its devices and software, allowing the company to achieve better performance and battery life.

“Apple’s gone from buying something off the rack to buying something where they have the pieces and they can tailor it themselves to their unique body shape,” Brookwood said.

Brookwood said he expects to see more of the A4 chipset if the iPad proves successful.

Apple’s iPad announcement also revealed a deeper antipathy toward Adobe Flash, the ubiquitous browser plug-in that enables most of the video and animations you see on the Web.

At the press event, Jobs avoided any mention of Flash, even when selling the iPad as delivering the Internet in your hand. And at a company staff meeting a few days later, Jobs reportedly called Adobe’s browser plug-in “buggy” and said the world will be moving to HTML5, a new Web language that will eliminate the need for Flash in many instances.

Tech pundits said Apple’s crusade against Flash appears to be philosophical, practical and political. The opposition might be a way to steer consumers to Apple’s iTunes and App Store, where they can find video content and applications that replicate the Flash content, often at a price.

“Apple’s position is they want to move things off the Web to the (iTunes) App Store,” said David Wadhwani, vice president and general manager of Adobe’s platform business. “Our position is we will support both models and let the consumer choose.”

Flash the next floppy disk?

Apple also appears reluctant to allow San Jose’s Adobe access to its iPhone operating system, especially when its Flash software is the cause of most of its crashes on the Mac, a claim Jobs reportedly made at his staff meeting. By advocating HTML5, Jobs could be attempting to help precipitate the decline of Flash, something he also predicted with floppy disk drives and more recently optical drives, wrote Farhad Manjoo, a technology columnist for online magazine Slate.

“Jobs could be betting that the same thing will happen with Flash,” Manjoo said. “There will be a lot of whining in the short run, but in time, we’ll all forget we ever wanted it and keep buying iPads.”

With Apple’s decision to go with the iPhone operating system, instead of Mac OS X or a hybrid, the company seems even more intent on using it as a major platform for mobile development. Apple has outpaced rivals in the mobile application market with more than 140,000 apps, but it has faced increasing competition from Google’s Android, which is also being pitched as a tablet operating system.”

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Here is a good weekend article around youth online behaviours well worth a reading. The SF Chronichle article points out that Twitter has failed to catch up among the young, Myspace invites for blogging in contrary to Facebook that is more of a staus/ short message socializing forum.

Questions that I get from this is how to reach the youth with businessmodels, enabling profits, advertising etc. Also, if the lifecycles of products are as shorts as a few years, what happens with existing, but declining businesses?

Gerbsman Partners are able to provide leadership in this questions, please contact us for more information.

“Teenagers and young adults spent less time blogging during the past three years as social networks like Facebook became more popular, according to a Pew Research Center study released Wednesday.

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Here is an interresting article from Seeking Alpha.

“By Rob Day

Haven’t had much time to go through the various recent cleantech IPO filings, and so haven’t talked about them much. Also just generally hoping they do well, for the sake of the overall industry.

But in a meeting today someone put up some stats that were pretty sobering.

Taking a basket of 4 high profile recent IPOs and filings, the total across the four companies was:

– Trailing twelve month revenues = $319M

– Trailing twelve month EBITDA = -($343M)

– Total venture dollars put into all four companies to date = approximately $1.5B

Like I said, I hope all of these companies do well and grow into great companies. But this type of profile for IPO isn’t the norm. So you have to wonder about it.

Someone today mentioned that they think these companies have to IPO now because they need yet more capital and the private equity world is tapped out. I disagree, I think companies with prospects like these would be able to raise more capital, if not from traditional VCs, then from non-traditional private equity players. Cleantech private equity is down, but far from tapped out.”

Read the full blogpost here.

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Here is a article from Financial Times.

“Moody’s Investors Service fired off a warning on Wednesday that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit.

In a move that follows intensifying concern among investors over the US deficit, Moody’s said the country faced a trajectory of debt growth that was “clearly continuously upward”.

Steven Hess, senior credit officer at Moody’s, said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilise debt levels in relation to gross domestic product.

“Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,” the rating agency added in an issuer note.

This week, the White House forecast a $1,565bn budget deficit for 2010, which represents 10.6 per cent of gross domestic product and is the highest such ratio of debt to GDP since the second world war.

While the budget gap is forecast to fall to about 4 per cent by 2013, it is based in part on economic growth not falling below government expectations, Congress agreeing to tax rises and a spending freeze on non-security discretionary spending.

Crucially, projections of the overall debt-to-GDP ratio for the US are seen rising from 53 per cent in 2009 to 73 per cent in 2015 and 77 per cent by 2020.

Moody’s, however, says this understates the overall US debt level.”

Read the full article here.

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