Bangalore: Venture capital firms in India are finding themselves in a bit of a predicament. They are eager—and have money—to invest in green technology. But there appears to be very few companies with interesting business models or innovative technology in the relatively nascent segment.
Clean and green technology typically includes any energy, water, transportation, manufacturing or agricultural technology that keeps the environment clean by making emissions less toxic or by reducing waste.
The technologies typically include recycling, water purification, sewage treatment, remediation, flue gas treatment, solid waste management and renewable energy.
While many funds have talked of resources available at their end for such investments, no significant deals have been announced so far this year in India.
“We are keen on investing in this segment but are not able to zero in on the kind of companies that would interest us enough. As a venture capital firm, we are looking at defensible innovations and execution skills, but there have not been any so far,” says Alok Mittal, managing director, Canaan Partners.
Canaan is an early-stage venture capitalist focusing on technology companies.
Factors such as increasing population, rising oil prices as well as growing concern over carbon emissions are leading to a growing interest in investment opportunities in clean-technology companies all over the world, particularly in Silcon Valley, California.
According to a Dow Jones VentureSource report, venture capitalists invested $2.5 billion in 159 US clean-tech deals in 2007.
Some venture capitalists operating in India, however, say it will also be difficult to generate investment from them if they do not see an attractive market for a technology. “Venture capitalists do not like taking risks. Investments are a hit or miss business. The question finally comes to return in equity. How rewarding an investment would be?” says Rahul Khanna, director, Clearstone Ventures.
Khanna says though green/clean technology sounds very interesting, it is a traditional theme here and generally has agricultural background with slower pace of growth.
“When we have a choice of investing in services sector, which have the required talent, fast returns and innovations, then there has to be a very strong reason to invest in green-tech firms,” he says.
Last year, UTI Ventures, a private equity firm, invested $8 million in Pesco Beam Environmental Solutions, a firm involved in waste-oil recycling and alternate energy systems, while IDFC Private Equity had invested Rs35 crore in Ahmedabad-based Doshion, a water management firm, in the second half of 2007. Kleiner Perkins Caufield and Byers, or KPCB, the venture capital firm that has backed companies such as Amazon.com, Google Inc. and Sun Microsystems Inc., too, wants to actively invest in clean-technology companies in India.
Kleiner, which partners with Sherpalo Ventures for all its India investments, has so far been focused on consumer-facing businesses and has invested in five companies in the information technology and Internet sectors.
Among others who have shown interest in investment in this segment in India are IDG Ventures India, Draper Fisher Jurvetson India, Advisory Services, ePlanet Advisors, Global Environment Fund, Aavishkar India Micro Venture, Capital Fund, Lightspeed Venture Partners, Nexus India Capital Advisors, Vinod Khosla (Khosla Ventures), and NEA Indo-US Venture.
The other obstacles in green technology are fund size as well as long gestation periods for investments.
Venture capitalists say any Indian government initiative, especially in terms of subsidies to the sector, would attract more investors. “In a segment which has the potential of not being found attractive by a growth equity player, the government has to take initiatives, in terms of subsidies. Government subsidies have triggered investments in countries like Germany and Japan,” says Canaan’s Mittal.
Still, others are moving ahead. Hyderabad-based New Ventures India helps start-ups in clean technology and renewable energy. New Ventures is a programme of Washington DC-based environmental think tank World Resources Institute. “About six months back, green-tech investment was much hyped. Now, investors are getting serious. We expect a couple of deals to be announced soon,” says country director Suneel Parasnis. He said that considering that most VCs do not invest more than $5 million, five funds have decided to come together for investments in the segment. He, however, refused to divulge their names.
Experts do expect to see more investments. “I expect in 2008 to 2010, venture and private equity funds to invest substantially in green technologies.” says Sudhir Sethi, cha-irman and managing director, IDG Ventures India, a $150 million early-stage technology venture capital fund. Lightspeed Advisory Services India Pvt. Ltd and IDG had earlier said they expect niche funds for green-tech and health care sectors to be floated this year.