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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