Energy Investment Sees a Revival:
Funds for New Technologies in the Industry Get Boost from Venture Capitalists

The Wall Street Journal Europe
By Marietta Cauchi

March 31, 2004

LONDON — A venture capitalist making money in energy technology is about as likely as a red iceberg. But venture funds are getting help.

In February, the California Public Employees' Retirement System, or Calpers, and the California State Teachers' Retirement System, or Calstrs, said they would commit a combined $500 million, or around ¥412 million, in private equity investments, venture capital and project financing to develop “clean” technologies. An additional combined $1 billion of Calpers's and Calstrs's equity portfolios was committed to investment in environmentally screened funds. Calpers and Calstrs have combined assets of $250 billion.

Dwindling fossil-fuel resources and more industry deregulation combined with environmental pressure for cleaner fuels are pushing corporate companies such as BP PLC of the U.K., Kyocera Corp. of Japan and General Electric Co. of the U.S. to spend on alternative energy sources.

In the U.S., venture-capital investment is following. Venture investment in energy technology was 2.4% of total venture capital invested in 2003, up from 2.1% in 2002 — and the highest since the 1999 boom, according to figures from research company Clean Edge.

While there are no corresponding figures for Europe, Lindsay Pike, who manages Boston-based Advent International Corp.'s investments in energy, said she is seeing more interesting opportunities in Europe.

“Energy-technology companies in Europe are able to draw on Europe's excellent scientific resources, and we also see interesting companies spun out of larger corporations,” she said. “In addition, macro trends, such as higher energy prices and greater concern about emissions and the environment, create favorable conditions for increased investment in European energy technology.”

Advent's portfolio companies include Active Power Inc. of Austin, Texas, whose patented flywheel technology is the world's first commercially viable mechanical battery. Advent invested early, leading an initial $3.75 million round in 1996. Active Power went public in August 2000 raising $139 million.

Advent's second fund closed with $88 million in 2002 and targets alternative energy technologies. Investments include California companies Catalytic Solutions Inc. and PowerGenix Systems, which is developing a rechargeable nickel-zinc battery, and ISOPur Fluid Technologies Inc. of Connecticut, which has patented a filter technology for purifying lubricating oils and other nonconducting fluids.

It isn't just cutting-edge technology that has attracted venture capital.

Blackouts in Europe and the U.S. last summer and security issues have focused attention on the need for more powerful and accessible systems, said Neil Suslak, managing director of venture-capital company Braemar Energy Ventures in New York.

“Remote generators with long transportation and supply channels are open to terrorism and theft as well as technical problems,” he said.

Braemar's first fund opened in 2002 and aims to raise as much as $70 million and invest in $1 million to $3 million rounds alongside larger players such as Advent and Apax Partners & Co. of the U.K. Braemar has made an investment in Solicore Inc. of Florida, a maker of a next-generation lithium-ion batteries used in semiconductors, and EnerNOC Inc. of Boston, a start-up data-communications company that focuses on delivering real-time energy information and analysis.

“There is a lot of investment going into communication devices on power grids to monitor, control and shift more data digitally,” Mr. Suslak said.

Power storage and portability also are grabbing a share of venture capital. Advent invested in Ballard Power Systems Inc. of Burnaby, British Columbia, maker of the world's first hydrogen-powered fuel cell that powers zero-emissions buses. Ballard went public in 1998.

There are a number of companies pioneering technologies for use in the fuel-cell industry. Apax has invested in Nanomix Inc. of Emeryville, California, which is using nanotubes to develop hydrogen-storage devices that will absorb hydrogen gas, making it safer and easier to carry in a family car, for example.

Apax led a $9 million funding round with Dallas-based Sevin Rosen Funds and Alta Partners of San Francisco.

With more venture money heading into energy and energy technology, this could become an expanding asset class, as long as the results stay green, as in the color of money.