Venture capitalists pitched limited partner investors on new funds at the Cleantech Venture Forum earlier this fall, playing down their backgrounds as information technology investors and playing up their newfound love of the emerging industrial investment field.
Among the new cleantech funds being raised are Sail Venture Partners, which has raised $20 million of a targetd $60 million, Israel Cleantech Ventures, which was launched by Glen Schwaber, formerly of Jerusalem Venture Partners (JVP), and Noventi Fieldstone Ventures, which has raised $30 million of a targeted $100 million fund.
“You have a rising tide issue,” says Tom Cain, founder and managing partner of Sail Venture Partners, which is based in Costa Mesa, Calif. “Why swim against the current? It’s a multi-decade rising tide.”
Cain, who previously founded a supply chain software company, wasn’t the only investor with an IT background at the Cleantech Venture Forum to repurpose himself to take advantage of the boom in industrial investment. James Horn, a managing director of Noventi in Menlo Park, Calif., says his VC firm dropped IT to focus on cleantech because of limited partner interest in the space. Noventi raised close to a third of the new fund from one LP: Sorgenia, an energy division of the CIR Group, an Italian industrial conglomerate. CIR had a particular interest in cleantech, Horn says, and was an attractive anchor tenet in the fund.
The move to cleantech is particularly surprising given Noventi’s successes with early stage tech deals. The firm’s previous fund—a $40 million IT only fund raised in 2002—has an internal rate of return in excess of 30%, Horn says. One of the fund’s biggest hits was Sygate, a network security startup which sold to Symantec for an undisclosed amount in 2005. Noventi held a 10% stake prior to the sale. The IT-focused fund also saw three exits from sales: It sold mobile content startup M7 Networks to Motricity; mobile infrastructure startup Teltier Technologies to DynamicSoft; and computer reservation system maker Travel Discount to German tourism company TUI.
Noventi continues to manage its IT portfolio, which includes mobile phone technology startup Bitfone. But CIR had been the firm’s major backer and the LP wanted exposure to cutting edge industrial technologies.
Out with the old
Meanwhile, Schwaber says his decision to leave JVP to launch Israel Cleantech Ventures had more to do with opportunities he saw than any particular interest from institutional investors. Schwaber sat on the boards of optical broadband companies CyOptics, Inplane and Kodeos Communications while at JVP. He also scored nice exits on Sheer Networks, which was acquired by Cisco, and PowerDsine (Nasdaq: PDSN). But he opted to leave JVP, which expects to raise a fifth IT fund next year, because he believes the venture market in Israel has matured. “The larger all-purpose funds are going to have trouble generating good returns,” Schwaber says.
Cleantech looked like an untapped opportunity to Schwaber, especially in Israel. He says there are 250 Israeeli startups that fall into the cleantech category, and the country is putting money into desalinization and geothermal power projects. Up to now, most of the innovation has come from large corporations. “There’s an opportunity to be a first mover here,” says Schwaber, who expects Israel Cleantech Ventures to have its first close by the end of the year.
It hasn’t been easy for the emerging managers in this field to raise money, Cain says. They have to compete with well-known firms as well as large companies, such as BASF, which has launched a venture fund focused on cleantech. And the incumbents aren’t making it any easier. It seems they’re constantly upping their funds to include more limited partners. DFJ Element, for example, closed a $284 million cleantech and energy fund in July—nearly double the $150 million it set out to raise last October—and Kleiner Perkins Caufield & Byers doubled its greentech push, allocating $200 million to the sector.
But Cain expects institutional investors will start looking to new funds. “They’ve topped out investing with the big name managers and will start looking for emerging managers soon,” he says. —Alexander Haislip