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Venture Investment in Sustainable Energy Technologies.


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Even Bakke, Managing Director - Bankinvest Group - Denmark.

Even Bakke, Managing Director - Bankinvest Group - Denmark.

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  • 1. TBLI 2007 Paris – Private Equity and Sustainability VC Investments in Clean Energy Technologies Dr. Even Bakke, Venture Partner New Energy Solutions VC Fund, BankInvest Group A/S Paris, France, November 16, 2007
  • 2. Key Questions for VC investors:
    • Can the goals of sustainability be combined with attractive financial returns?
    • What type of investments can meet both criteria?
    • What are the obstacles and growth opportunities in this sector?
    • Do you have specific examples that you can share with the audience to bring the subject matter to life?
  • 3. BankInvest Group A/S, Copenhagen, Denmark
    • Founded in 1969 and the third largest asset manager in Denmark:
      • Asset management is the only activity
      • 170 employees; with 50 % investment professionals
    • Owned by 52 small and medium sized Danish banks:
      • Independent of any individual banking, brokerage or corporate finance institution; one of Denmark’s leading asset manager
    • BankInvest manages assets of about DKK 150 billion or EUR 20 billion:
      • 45 % institutional clients and high net-worth individuals
      • 55 % in retail mutual funds marketed through owner banks
      • More than 200,000 private and institutional investor customers
    • BankInvest’s 4 venture funds:
      • BI Biomedical : Started in 1998; DKK 3.6 Billion (EUR 450 mn) capital; invested in 35 companies
      • BI NorthCap (IT) : Started in 2000; DKK 1,000 mn (EUR 133 mn) capital; invested in 15 companies
      • BI Private Equity in Emerging Markets : Started in 2006; DKK 500 mn (EUR 65 mn) capital; invested in 7 companies
      • BI New Energy Solutions : Started in July 2002; EUR 51mn capital; life 10 years, invested in 12 companies: Fund II in 2007; larger than EUR 100 mm
  • 4. Investment universe for clean energy technologies: What are clean energy technologies?
    • Electrical power generated from renewable and environmentally clean resources, such as wind power, solar power, tidal power and hydro power.
    • Electric and thermal energy generated from the use of clean fuels such as natural gas, hydrogen and bio-fuels (e.g. ethanol and bio-diesel).
    • S maller scale and distributed technologies for power generation and energy storage, such as fuel cells, batteries, flywheels, micro-turbines, etc.
    • Components and products for more efficient and reliable energy conversion and utilization, i.e. enabling technologies for clean energy.
  • 5. Investment case for clean energy technologies: The expected growth in clean energy technologies is driven by:
    • Capacity constraints in the installed base of power generation plants
    • The pace of development within clean energy technologies which is making these competitive with traditional technologies based on fossil fuels
    • Political focus and targets for clean energy
    • Need for supply security in Europe and the US, i.e. independence of the oil reserves outside OECD countries
    • Demand for improved energy reliability and quality as a result of increased dependence upon “mission critical” IT hardware and software
    • The continued high prices of oil and natural gas
  • 6. Electric power options; - CO 2 emissions in kg CO 2 /kWh of electricity
    • Technology options for new or replacement capacity CO 2 emissions
    • Large scale coal fired central stations (US and China): 0.8 to 1.04
    • Large nat. gas fired gas turbines; combined or single cycle: 0.4 to 0.6
    • Bio-fuels (2nd generation): 0.1 to 0.2
    • Small distributed combined heat and power (CHP): 0.3 to 0.4
    • Geothermal: 0.03 to 0.4
    • Photovoltaic and solar thermal (in Europe): 0.2
    • Distributed fuel cells using hydrogen from renewables: 0.05
    • Wind power: 0.02
    • Nuclear (Finland, India, China, US? France?); not insurable! 0.02
    • Small hydro power (< 20 MW): 0.004
    • Tidal power: 0.003
    • CO 2 emissions range from 1 to 300 !
    • With no CO 2 emission limits or penalties, this is a very uneven playing field for renewable and distributed energy
    • CO2 from coal burned from 1751 to 2002 (250 years) was 542 billion tons
    • Forecasted (IEA) coal burning emissions from 2003 to 2030 is 505 billion tons !
    • Nat. gas CO2 emission: 1751– 2003 = 142; 2003–2030 = 226 billion tons !
  • 7. Source: Clean Edge, Inc. Investments in clean energy technologies are expected to grow by 35 % annually during the coming decade Investment case for clean energy technologies:
  • 8. Clean Energy IPOs in 2005 and 2006:
    • Company Market-cap (USD) Technology
    • Q-Cells AG (DE) 3,250 mn Solar PV
    • Ceres Power Inc (UK) 278 - Fuel cells
    • ITM Power (UK) 274 - Fuel cells
    • Conergy AG (DE) 1,550 - Solar PV
    • Enersys (US) 819 - Batteries
    • Ersol Solar Energy AG (DE) 673 - Solar PV
    • Clipper Windpower Plc (UK) 909 - Wind power
    • SunPower Corp (US) 2,157 - Solar PV
    • Renewable Energy Corp (NO) 6,833 - Solar PV/Silicone
    • Aventine Renw. Energy (US) 1,180 - Biofuels
    • VeraSun Energy (US) 1,702 - Biofuels
    • Ormat Technologies (US) 1,323 - Geothermal
    • Total: 20,958 mn in 12 companies
  • 9. European Clean Energy VC investment results - The Bottom Line – Investment Outcome 1998 to Q2 2007 Source: NEF (ECEVRA) Total jobs created was 28,000; 10,000 direct and 18,000 indirect about 50 % of VC funded companies in Europe IRR 2006 – 2007 with 34 companies = 52.2 % Investors 37 Portfolio Companies 134 Gross invested € 283.6m Gross exited € 390.4m Net (in) out € 106.8m Unrealised value € 339.0m IRR= 54.9%
  • 10. Sector performance since launch in June 2002 Source: Bloomberg The clean energy technology companies are out-performing other technology companies and the broader equity market
  • 11. BI New Energy Solutions I Since the launch of BI New Energy Solutions I in June of 2002 the fund has accomplished as follows:
    • Raised more than EUR 51 million from a series of Danish institutional investors.
    • The investment team has screened more than 300 investment proposals.
    • Executed 12 investments of which eight are still active portfolio companies, two have been written off and two have recently been exited from.
    • The twelve investments are split with 3 in Denmark, 5 in the rest of Europe and 4 in North America.
  • 12. Start-up Financing Early Expansion Financing Late Expansion Financing Bridge Pre-IPO Financing Independent Company Seed/Research Financing NES Investment focus … but the fund will also invest in s eed /R&D opportunities for high potential and new breakthrough technologies . Geographical priorities: 1. Nordic region, 2. Europe, 3. North America “ Invest in local market company, but exit in a global market company” The NES investment focus : Renewable and Distributed Energy Technologies The fund’s investment focus is on s tart-up and/or expansion equity f inancing based upon a credible business model and dev. plan: NES EXIT
  • 13. Sources for NES I cases: - Status: June 2006; 329 cases evaluated
    • Individual entrepreneurs and founders 89 or 27%
    • Small start-up or early expansion companies 76 23%
    • Late expansion companies 7 2%
    • University and institute researchers (gov.) 15 5%
    • Innovation and incubator centers (gov.) 12 4%
    • Gov. and industrial R&D institutions (gov.) 6 2%
    • Seed funding investors 9 3%
    • Corporate spin-outs 12 4%
    • Advisory Board referrals 8 2%
    • Investment banks and placement agents 55 17%
    • Other VC firms and corporate venturing 40 12%
    • SUM: 329 100%
    • 50 % directly from the founders and small start-up companies
    • Only 11% from governmental supported institutions
  • 14. We believe that the portfolio of BI New Energy Solutions I represents a significant return potential UltraCell AquaZ Current Portfolio of BI New Energy Solutions I
  • 15. We continue to be confident that NES I on an IRR basis will return more than 20 % p.a. to its investors Company sold to BASF in December 2006 BASF paid € 83mn in cash for the company. NES I realised 2.6x return upon sale to BASF and an IRR of 64 % for the life of the investment. Company sold to Plug Power in March 2007 Plug Power paid $ 45mn for the company NES I realised 1.7x upon sale to Plug Power (after less than one years ownership). IPO completed March 2007 on AIM in London Raised $ 18mn at a pre-money of 35mn NES I realised ~1.7x upon IPO. Expects to exit the investment in 2008 at a return exceeding 3x. NES I Exits:
  • 16. Some US and European statisics:
    • The US has now about 500 VC funds managing 150 BUSD
    • In year 2000, European VCs invested about 35 BUSD , while US VCs invested more than 125 BUSD (peak year)
    • Venture capitalists have created nearly one third of the total market value of the public companies in the US ( Ref:”The Money of Innovation” )
    • In Europe, due to lack of one open market , it is essential that startup companies can establish and get early support from their local customers and markets and then use this as a platform for expansion outside their home country
    The US has one big market, but the EU has fundamentally 25 markets for startup companies
  • 17. Overall assessment of European VC environments: Unfavourable Borderline Nearing healthy Self sustainable Germany Sweden United Kingdom None in Europe! Ireland Norway Switzerland but in: Finland Italy Netherlands USA Hungary Austria France Canada Czech Rep. Belgium Denmark Israel Greece Portugal Hong Kong Poland Spain Source: ”Issues and Policy Framework for the Development of Self-Sustainable Venture Capital Market in Europe” by Graham Cope, M.Sc. Thesis, University of Luxemborg, April 2005
  • 18.
    • Lack of business angles with seed capital for early startups
    • ” Heavy” bankruptcy procedures and laws; a bankruptcy is a “career stopper” in Europe vs. a “learning experience” in the US
    • Inflexible labor laws, difficult and expensive to downsize a company
    • Lack of an open market within the EU; significant country by country entry barriers for small startup companies
    • Very fragmented incentive schemes for clean energy developments within the EU (e.g. DE vs. UK)
    • Not enough government funding to startup companies; government R&D funding does not result much in new company creations
    • General lack of entrepreneurial spirit amongst young people in Europe; they want to be employees rather than start their own companies
    • However, European institutional investors are now showing a strong interest in this space and VC firms are gearing up !
    Specific European Barriers or Hurdles for Climate Friendly Investments:
  • 19. International VC investment climate: - European problem: lack of seed financing and business angels
    • Our experience is that early
    • seed VC funding is much easier
    • available in Norway than in
    • Denmark, Finland and Sweden:
    • In the US, about 500 MUSD VC
    • investments were made in 2004
    • Most Nordic high quality start-up
    • and early expansion cases are
    • coming from Norway
    Source : The Economist Between 2000 and 2005: In the EU, 51% wants fixed employment (up 2 %) while in the US, 34% wants it (down 3%)
  • 20. The clean energy investment space : - A very high growth sector (> 35%/yr.), with a market approaching 50 BUSD/yr. with strong supporting macro trends: very high oil and natural gas prices and global warming concerns :
    • US is significantly ahead of Europe in R&D, innovation, government support, number of deals and the financing of these
    • Therefore, one has also to look at clean energy deals in North America; Europe is too small in this investment space
    • Europe has a big disadvantage in the lack of an open market and inflexible labor laws and regulations
    • In Europe, there is also a lack of “angle” investors and entrepreneurs willing to take the risks of starting new companies
    • Government R&D funding does not result in significant new company creation in Europe
    • However, now a strong interest by European institutional investors in the clean energy space
  • 21. Thank you for your attention, any questions ? Dr. Even Bakke Venture Partner, NES VC Fund BankInvest Group A/S Sundkrogsgade 7 DK-2100 Copenhagen Denmark [email_address] Direct: +45 7730 9182 Mobile: +45 4015 9182 Mr. Poul Erik Schou-Pedersen Managing Partner, NES VC Fund BankInvest Group A/S Sundkrogsgade 7 DK-2100 Copenhagen Denmark [email_address] Direct: +45 77319255 Mobile: +45 40577611
  • 22. Backups
  • 23. Even Bakke – Venture Partner
    • B.S. Mechanical Engineering and M.S. and Ph.D. in Chemical Engineering, University of Colorado, Boulder, Colorado
    • 25 years of US power and industrial OEM working experience.
    • 16 years with ABB latest 6 years in Europe. Business Area Manager for ABB’s global environmental business. Annual sales of 500 to 1,000 MUSD with 2,000 people in 24 countries.
    • Last 4 years at ABB: Large R&D project funding and execution and corporate venturing. Invested 20 MUSD in 15 companies
    • 2002 – 2007 (June) Managing Director BankInvest Group A/S, New Energy Solutions VC Fund I (NES I). Invested 50 MEUR in 12 companies
    • As of June 2007 NES I and II Venture Partner focusing on technology assessment and deal sourcing.
  • 24. BI New Energy Solutions II Fund raising will be closed in the fall 2007. The current status and deal flow in the fund are as follows:
    • Capital raised from a series of Danish and International investors – goal of EUR 150 million expected.
    • The investment team has screened more than 50 NES II investment proposals (started Jan. 2007).
    • Executed 1 investment in O-Flexx Technologies GmbH.
    • 4 companies in due diligence – 3 in Europe and 1 in North America.
    • 3 companies screened as interesting and in pre-due diligence phase.
    • The pioneering effort of BankInvest within clean energy investments has secured BI New Energy Solutions II a very favourable position within this space.
  • 25. NES I case distribution by country: - 329 cases as of June 2006: Nordic = 155 or 47% Country Total Hi Q Cases Invested Denmark 75 16 3 Norway 36 13 2 Sweden 36 6 0 Finland 7 1 0 France 4 0 0 Iceland 1 1 0 UK 33 6 1 Spain 4 0 0 Netherlands 9 4 0 Germany 25 7 2 Switzerland 10 2 0 USA 63 10 3 Canada 7 2 1 Other 19 0 0 Totals: 329 68 12 Number of cases presented to the Advisory Board = 26 (since fall 2002); invested in 12 companies so far
  • 26. NES I case distribution in clean energy tech. - 329 cases as of June 2006 Technology # Cases Invested Wind power 29 Wave power 20 Tidal power 7 1 Hydro power (small) 5 Solar Photovoltaic 27 Solar Thermal 15 Bio-fuels 35 1 Fuel cells 41 3 Small & micro gas turbines and engines 19 CHP (and cool) 9 Energy storage 21 1 Power electronics 21 1 Components and sensors 27 3 Miscellaneous 53 2 Totals 329 12 2001: 2 cases, 2002: 97, 2003: 78, 2004: 89, 2005: 42, 2006 1H: 21 cases
  • 27. NES I & II cases summary; ”the funnel” 350 relevant cases have been investigated 28 high quality cases have been presented to the Advisory Board following preliminary due diligence by the NES team We have invested in 13 companies (3.7%) after completing the final due diligence including resolution of the feedback from the Advisory Board 13
  • 28. NES co-investors: - status as of May 2006: Venture Capital Firms: Emerald Ventures, Zurich, CH Glastad Invest AS, Oslo, NO Såkorninvest sør as, Kristiansand, NO BayTech Venture Capital, Munchen, DE Conduit Ventures, London, UK Jon Moulton (Alchemy Partners), London, UK CDP Capital, Montreal, CA Infraserv, Frankfurt, DE Cooper Capital, Newport Beach, CA, USA Cabayan Ventures, Los Angeles, CA, USA Sevin Rosen, Palo Alto, CA, USA Star Ventures, Dallas, TX, USA OnPoint Technologies, Maitland, FL, USA ES Tech Ventures, Lisabon. PT Munich Venture Partners, Munich, DE Impax, London, UK Stonefund, Bruxelles BE Yellowstone, Dallas, TX, USA Venture West, Vancouver, BC, CA GrowthWorks Capital, Vancouver, BC, CA Corporate Venturing Groups: Danfoss Corporate Venture, Nordborg, DK Norsk Hydro Technology Ventures, Oslo, NO Vattenfall Ventures, Berlin, DE Celanese Ventures GmbH, Frankfurt, DE London Power (EdF Energy), London, UK Geurnsey Power Ltd, UK Tridus, Rancho Dominguez, CA, USA Sumitomo, Tokyo, JP Dynamics Ventures, Muenchen, DE SoCal Gas (Sempra), Los Angeles, CA, USA Itochu Corp., Tokyo, JP Kawasaki Heavy Industries, Tokyo, JP NESA A/S, Copenhagen, DK Industrie DeNora SpA, Milan, IT SeaCore Ltd. Bristol, UK An active international network of co-investors is essential