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“Cleantech, the next Bubble to Burst” – An Industry Update from Gerbsman Partners.

Posted in Board Of Intellectual Capital, tagged , , , , , , , , , , , on February 11, 2010| Leave a Comment »

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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Hints of a bubble in green-tech IPOs

Posted in Board Of Intellectual Capital, tagged , , , , , , , , , , , on February 10, 2010| Leave a Comment »

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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Venture Capital Clean Tech Love Affair Is Maturing

Posted in Board Of Intellectual Capital, tagged , , , , , , , on February 9, 2010| Leave a Comment »

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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Trouble Brewing for Cleantech IPOs?

Posted in Board Of Intellectual Capital, Business models, cleantech, tagged , , , , , on February 5, 2010| Leave a Comment »

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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Silicon Valley faces fierce global competition in cleantech

Posted in Board Of Intellectual Capital, cleantech, Gerbsman Partners, Investments, Market research, Strategy, Technology, Venture Capital, tagged , , , , , , , , , , , , , on February 3, 2010| Leave a Comment »

Here is a Cleantech article from Mercury News.

“In other tech revolutions of recent decades, Silicon Valley became the uncontested global leader. The region’s ability to innovate its way to the top in cleantech, though, is far from guaranteed. Competition is fierce and global, with trillions of dollars at stake.

One of the valley’s greatest challenges comes from here. China’s drive to be a dominant power in the emerging global cleantech industry was on display one recent morning on the campus of the nation’s third-largest solar-panel maker, Trina Solar. New assembly-line employees, in an exercise designed to instill discipline, marched military-style around the grid-like campus, chanting responses to a drill leader dressed in army fatigues.

But China’s ambitions in cleantech reach far beyond piecing together solar panels. The central government has committed more than $100 billion a year to green technology research. It also has put in place incentives to create markets for everything from electric cars to rooftop solar water heaters to jump-start homegrown cleantech companies.

Provincial and local governments also are investing heavily in cleantech. Leaders in Jiangsu Province, where Trina Solar is located, are placing big bets on the solar industry, inspired by the municipal government of Wuxi. That Jiangsu Province city financially backed Suntech Power, now a global solar leader.

“China is moving very aggressively,” U.S. Energy Secretary Steven Chu said during a visit to Google’s Mountain View headquarters last fall. “They want to be a leader in this new industrial revolution.”

A group of valley tech executives, including former Intel CEO Andy Grove, recently sent a letter to Chu urging the energy secretary to “sound the alarm bell to make America aware — clearly and unequivocally — of how rapidly other nations, particularly China, are moving on clean energy.

“Unless we move quickly and commit substantial resources on a sustained basis, we risk becoming an energy also-ran, and risk developing a new dependency,” said the letter, also signed by Michael Splinter, CEO of Applied Materials, and John Doerr, a partner at venture capital firm Kleiner, Perkins, Caufield & Byers.

They urge the government to provide financial assistance to clean energy industries, including incentives for replacing polluting power plants with renewable sources of energy.

U.S. is lagging

Currently, only five of the world’s top 30 companies in the solar, wind and next-generation battery markets are based in the United States, according to John Denniston, also a partner with Kleiner.

U.S. government incentives — such as tax breaks and a regulation requiring utilities to buy power from solar and wind energy companies — were slowly eliminated in the 1980s after helping California become a global cleantech leader, said Ryan Wiser, a scientist at Lawrence Berkeley National Laboratory. Around the same time, Denmark, Germany and Spain — whose governments adopted policies and incentives to jump-start cleantech enterprises — were emerging as global leaders.”

Read the full article here.

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