In the best of times, it’s difficult to market an early-stage venture fund. But with economic instability in Europe and environmental concerns perhaps not being on top of the public agenda, VNT Management faced a daunting task to assemble its third renewables fund.
Nonetheless, the Vaasa, Finland-based firm finalized Fund III at a record €77 million ($100 million) in February, following repeat investments from several Finnish LPs and a €25 million ($33 million) commitment from the European Investment Fund (EIF).
VNT was able to secure a first close at €40 million ($52 million) in late 2011, although Managing Partner Jussi Palmroth says that fundraising conditions have deteriorated slightly since then.
“On the road, investors told me that they weren’t considering early stage VC at all, regardless of track record or the management company. That was pretty worrying,” Palmroth says.
“We believe we were successful because we have always targeted early-stage venture in renewables and that shows continuity in our business. We are not jumping into something like the gaming industry just because it’s hot.”
One small carrot for backers of renewables is the subsidies that many countries provide for clean energy projects.
VNT focuses on Finland, but also invests in the Nordics, Estonia and other German-speaking countries. Palmroth says that Germany has demonstrated the greatest commitment to renewables, but even there, he says, the rationale behind subsidies is being questioned.
“It’s important that new technologies are subsidized in the early stages, but our philosophy is that if a business is only profitable due to subsidies we will not invest because there is always a political risk [that subsidies will be withdrawn],” he says.
VNT tends to invest about €5 million ($6.5 million) per company and about €1 million ($1.3 million) initially at Series A, or at least when a business can show a working prototype in the field of electrical systems for cleantech.
The firm always takes minority stakes and avoids competition for deals because, as Palmroth says, the risks are too high for an early-stage renewable investment to justify a bidding war for a company.
In any case, although Palmroth notes that there are far more cleantech funds around today than when VNT launched in 2003, not many are investing in early-stage cleantech deals.
“We believe we were successful because we have always targeted early-stage venture in renewables and that shows continuity in our business. We are not jumping into something like the gaming industry just because it’s hot,” Palmroth says.
All of the new fund’s four investments to date have been in Finland, but VNT expects to complete one in Germany this year along with at least one exit.
Alex Derber is U.K.-based contributor. He can be reached at email@example.com.