Several private equity (PE) groups are creating funds exclusively for investing in clean technology in India, adding momentum to a sector where no funds currently exist.
These groups include the Nevada-based Arvco Capital Research Llc., Washington, DC-based Global Environment Fund, Hyderabad-based New Ventures India, New Delhi-based Sun Group and Mumbai-based Yes Bank Ltd. These are in addition to the increasing number of PE funds chasing the same segment from their general funds.
The capital pool is estimated at $500 million (Rs1,970 crore), not including the general funds, which is almost equal to the sum of all disclosed investments in Indian clean technology from 2001 until now. The funds could close in the next nine months to three years and would be deployed over the next one to seven years.
Interest in India is strong as many perceive the country as having the right talent fordeveloping technology and the additional incentive to do so be-cause of its growing power needs—and shortages.
Mohanjit Jolly, executive director of DFJ India Advisory Services Pvt. Ltd, said three of his limited partners recently had asked to visit him in India in order to discuss clean technology. In addition, investors have seen strong companies emerge here, including the high-profile clean technology poster-child Suzlon Energy Ltd, which received $141 million in PE investment and provided high returns to those investors.
Most of the groups are in the late stages of planning the fund or early stages of investor meetings. This is a fragile time when plans can change drastically or reverse, particularly in this case, given concerns about putting large sums of money to work in a nascent, riskier sector such as clean technology and in the Indian market that is seeing soaring valuations.
Many are considering broadening the geographical reach of the fund, leaving India as a focus. The vast majority of clean technology funds out there are regional or global and not necessarily single-country focused.
However, investors seem highly motivated by the possibility of helping the environment and making money doing it. Examples include turning the sturdy plant jatropha, with its short gestation period, into biofuel to help tackle the power crisis and create a profitable export; making solar-powered flashlights for Indian villagers to use at night; building energy-efficient buildings or getting rid of waste (plastic, electronic or human) and turning it into energy.
Suneel Parasnis, country director of New Ventures India, says the progress of the sector depends on helping the earlier-stage companies with capital and mentoring since there is currently a lack of seed funding.
“In Mumbai on the night of 15 November—the evening before its two-day forum for showcasing business plans— the New Ventures India steering committee, which includes heads of financial institutions and venture capital partners—will set plans for its seed fund that will be around $20 million,” he said. “Unless we have this gap closed up—$100,000 to $3 million—nothing will move.”
While the funds of both New Ventures India and Yes Bank are planning to invest in earlier-stage companies, other funds have not yet decided on their game plan. Most of the previous investments here were in mid- to later-stage companies, a situation similar to that in the US.
Meanwhile, PE groups are trying to determine how to structure the funds to get attractive enough returns. Fund managers do not seem to agree on whether a clean technology fund in India could get returns as high as other PE funds. Then there are those who say the social component will also have some value to potential investors.
In addition, several fund managers consider India to rank low on government support for clean technology development.
If PE groups can structure the funds advantageously and prove the opportunity in India, there seem to be willing backers, especially in the US and Europe, who see opportunities in clean technology from oil heading towards $100 a barrel and belief that the regulatory environment globally will increasingly favour such technology.
San Francisco-based clean technology research and consulting firm Clean Edge Inc. estimates that the global market for solar, wind, biofuels and fuel cells alone will be $226 billion by 2016, basedon the 39% growth this group saw from 2005 to 2006.