Investing in Cleantech – from Philanthropy to the Next Big Thing

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A presentation by Julia Balandina Jaquier at TBLI CONFERENCE EUROPE 2008.

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Investing in Cleantech – from Philanthropy to the Next Big Thing

  1. 1. INVESTING IN CLEANTECH FROM PHILANTHROPY TO THE NEXT BIG THING November 2008 Julia Balandina Jaquier AIG Investments
  2. 2. INVESTOR APPETITE FOR CLEANTECH <ul><li>a luxury </li></ul><ul><li>a niche market driven by environmentalists </li></ul><ul><li>regulated/driven by subsidies </li></ul><ul><li>= dependency + low economic viability </li></ul><ul><li>primarily Wind/Solar </li></ul><ul><li>= not applicable for base load </li></ul><ul><li>energy is “OLD ECONOMY” and “BORING” </li></ul><ul><li>an answer to energy security, rising energy demand and climate change </li></ul><ul><li>billion $ market, ↑growth, driven by irreversible global trends </li></ul><ul><li>regulated /driven by subsidies </li></ul><ul><li>= stability + visibility of revenues </li></ul><ul><li>primarily Wind/Solar </li></ul><ul><li>= no feedstock risk, good for peak supply </li></ul><ul><li>energy is “KEY” and “SEXY” </li></ul>CLEANTECH IS…. 5 YEARS AGO NOW
  3. 3. <ul><li>Mega-trends </li></ul><ul><li>Commodity/feedstock risk </li></ul><ul><li>Peak load </li></ul><ul><li>Regulation </li></ul><ul><li>Markets </li></ul><ul><li>Subsidy regimes </li></ul><ul><li>Technological maturity </li></ul><ul><li>Grid parity is a reality </li></ul>JUST A CHANGE OF PERCEPTION OR A CHANGE OF FUNDAMENTALS? PERCEPTION CHANGES FUNDAMENTAL CHANGES
  4. 4. HUGE CAPITAL INFLOW INTO CLEANTECH Source: New Energy Finance. USD 200 bn INVESTED IN CLEANTECH IN 2007 RENEWABLE ENERGY SHARE OF TOTAL NEW CAPACITY IN 2007 23%
  5. 5. WILL ALL THIS MONEY BE INVESTED SUSTAINABLY? <ul><li>CONTROVERSIAL AREAS EXIST: </li></ul>BEST COMBINATION OF GOING GOOD AND GOING WELL… CLEANTECH IS PROBABLY BEST EXAMPLE OF TBLI INVESTING: <ul><li>Quick pre-IPO rounds </li></ul><ul><li>First generation biofuels </li></ul><ul><li>Hedge funds </li></ul><ul><li>Drinking water </li></ul>SOCIAL Job creation, social benefits of core activities, support of young companies ENVIRONMENTAL Environmental innovation /solutions are core of operations <ul><ul><li>ECONOMIC </li></ul></ul><ul><ul><li>Generates exceptional returns </li></ul></ul>
  6. 6. PRIVATE EQUITY IN CLEANTECH – WHO WILL MAKE MONEY? STAY AHEAD OF THE PACK BE A VALUE-ADD INVESTOR LOOK FOR SPECIAL SITUATIONS 4 STRATEGIES TO GET THE DIAMONDS OF CLEANTECH: POSSESS STRONG SECTOR EXPERTISE AVOID COMPETITION WIN OVER COMPETITION
  7. 7. STRATEGY I: POSSESS STRONG SECTOR EXPERTISE <ul><li>Sector is broad and diverse </li></ul><ul><li>Regulatory environment is key, complex and changing </li></ul><ul><li>Technological innovation is inevitable </li></ul><ul><li>Valuations vary across geographies </li></ul><ul><li>Young companies with multiple activities </li></ul><ul><li>Management teams seek partners who understand market and technology </li></ul><ul><li>Deal experience is key </li></ul><ul><li>Develop internal knowledge, sector focus </li></ul><ul><li>Maintain it (tradeshows, market insights, etc..) </li></ul><ul><li>Use, involve and incentivize experts </li></ul><ul><li>Speak to peers </li></ul>WHY HOW BE/BECOME THE EXPERT
  8. 8. EXAMPLE: THIN FILM SOLAR
  9. 9. STRATEGY II: STAY AHEAD OF THE PACK <ul><li>Many great deals at high valuations </li></ul><ul><li>Cleantech is much more than wind, solar, and biomass … </li></ul><ul><li>Addresses any old-economy sector … </li></ul><ul><li>Identify overlooked subsectors </li></ul><ul><li>Resolve supply chain bottlenecks </li></ul><ul><li>Create deals </li></ul>WHY HOW DO NOT WAIT FOR DEALS COMING TO YOU FIND/CREATE TOMORROW’S “FLAVOR OF THE DAY”
  10. 10. EXAMPLES: SIMPLE SOLUTIONS
  11. 11. STRATEGY III: LOOK FOR SPECIAL SITUATIONS <ul><li>Potential challenges: </li></ul><ul><ul><li>Cost-overruns </li></ul></ul><ul><ul><li>Slower revenue ramp-up </li></ul></ul><ul><ul><li>Regulation/market sentiment </li></ul></ul><ul><ul><li>Debt facilities </li></ul></ul><ul><li>Resulting in: </li></ul><ul><ul><li>Need for additional capital infusion </li></ul></ul><ul><ul><li>Reasonable valuations </li></ul></ul><ul><li>Stay close to companies </li></ul><ul><li>Get a good insight over time before company is struggling </li></ul><ul><li>Be able to act quickly </li></ul><ul><li>Fundamentals should still work! </li></ul>WHY HOW STAY PATIENT AND BE PREPARED
  12. 12. EXAMPLE: SPECIAL SITUATIONS
  13. 13. STRATEGY IV: BE A VALUE-ADD INVESTOR <ul><li>Global markets require global strategies </li></ul><ul><li>Capital is not enough </li></ul><ul><li>Differentiation in competitive situations </li></ul><ul><li>Shifts focus from valuation </li></ul><ul><li>Value enhancement </li></ul><ul><li>Team enhancement </li></ul><ul><li>Strategic guidance </li></ul><ul><li>Financial discipline </li></ul><ul><li>Global strategy: </li></ul><ul><ul><li>Market entry/expansion </li></ul></ul><ul><ul><li>Global sourcing/offshore production </li></ul></ul><ul><ul><li>Raising capital globally </li></ul></ul>WHY HOW DEVELOP/IMPLEMENT VALUE-ADD STRATEGIES WORK CLOSELY WITH THE PORTFOLIO COMPANY
  14. 14. EXAMPLE: WIND COMPONENTS SOLUTIONS
  15. 15. TRAPS TO AVOID <ul><li>Interim solutions </li></ul><ul><li>Wonderful companies with mediocre management </li></ul><ul><li>Early stage deals </li></ul><ul><li>Long sales cycles </li></ul><ul><li>Competition with “big boys” </li></ul><ul><li>“ Next Google” deals at current Google valuations.. </li></ul><ul><li>Too eager to go public, or already there… </li></ul>
  16. 16. Disclosure Statement AIG Investments is a group of international companies that provide investment advice and market asset management products and services to clients around the world.  AIG Investments is a service mark of American International Group, Inc. (AIG). Services and products are provided by one or more affiliates of AIG. Readership: This document is intended solely for the addressee(s). Its content may be legally privileged and/or confidential. Opinions: Any opinions expressed in this document may be subject to change without notice. We are not soliciting or recommending any action based on this material. Risk Warning: Past performance is not indicative of future results. Our investment management services relate to a variety of investments, each of which can fluctuate in value. The value of portfolios we manage may fall as well as rise, and the investor may not get back the full amount originally invested. The investment risks vary between different types of instruments. For example, for investments involving exposure to a currency other than that in which the portfolio is denominated, changes in the rate of exchange may cause the value of investments, and consequently the value of the portfolio, to go up or down. In the case of a higher volatility portfolio the loss on realization or cancellation may be very high (including total loss of investment), as the value of such an investment may fall suddenly and substantially. In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved. Unless otherwise noted, all information contained herein is sourced with AIG and/or AIG Investments internal data. The content included herein has been shared with various in-house departments within the member companies of AIG Investments and/or AIG Private Bank Ltd., in the ordinary course of completion. All AIG Investments member companies comply with the confidentiality requirements of their respective jurisdictions. Parts of this presentation may be based on information received from sources we consider reliable. We do not represent that all of this information is accurate or complete, however, and it may not be relied upon as such. AIG Global Investment Corp. (Switzerland) Ltd. is a wholly owned subsidiary of AIG Private Bank Ltd. In the UK this document is intended for Intermediate Customers only and has been approved by AIG Global Investment Corp. (Europe) Ltd., authorized and regulated by the Financial Services Authority. AIG Global Real Estate Investment (Europe) Ltd. is an Appointed Representative of AIG Global Investment Corp. (Europe) Ltd. AIG Global Investment Corp. (Switzerland) Ltd. is a wholly owned subsidiary of AIG Private Bank Ltd. In the UK this document is intended for Intermediate Customers only and has been approved by AIG Global Investment Corp. (Europe) Ltd., authorized and regulated by the Financial Services Authority. AIG Global Real Estate Investment (Europe) Ltd. is an Appointed Representative of AIG Global Investment Corp. (Europe) Ltd. Approved by AIG Global Investment Corp. (Ireland) Ltd. and AIG Global Investment Fund Management Ltd., both authorized and regulated by the Irish Financial Services Regulatory Authority (“IFSRA”). In Australia, this document is intended for a limited number of wholesale clients as such term is defined in chapter 7 of the Corporations Act 2001 (CTH). The entity receiving this document represents that if it is in Australia, it is a wholesale client and it will not distribute this document to any other person whether in or outside of Australia. AIG Investments Web Address: www. aiginvestments.com 1003636
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