Cleantech VC:  The LP perspective, pt 1

On this site we’ve occasionally enlisted fellow VCs and other market participants in a “five questions” exercise, to help share other voices from around the industry, but one voice that’s been lacking here (and, for the most part, elsewhere) has been the perspective from the limited partner community in cleantech venture capital.

As a reminder, limited partners (or LPs) are the investors who give capital to venture capital funds to invest on their behalf.  They can be institutional investors, family offices, individuals, etc., but in all cases they are essentially the VCs’ “customers”, interacting with and evaluating which funds to back, etc.  So they’re a pretty important stakeholder in this whole asset class of ours, and yet typically they’re quietly in the background while bloviating (read: blogging) VCs hog all the limelight.

I thought it would be useful to begin getting the LPs’ perspective here on the site.  And the first victim volunteer kind enough to step up to the plate is Danny Zouber, a Partner in Piper Jaffray’s Private Capital Team.  In 2005, Piper Jaffray launched the first US-based cleantech private equity “fund of funds,” and they’ve been analyzing energy and cleantech firms even longer than that.  Danny’s been an investor that I’ve enjoyed chatting with and getting insights from for a while now, especially since he has such a strong and deep focus in this sector.  So I asked Danny if he’d answer a few questions for readers, and he kindly agreed:

1. How is the current economic crisis affecting cleantech LPs like your group?

We continue to see strong demand from our investors but we are starting to see some denominator effect that is limiting their ability to make any new PE commitments.

2. How do you see the current economic crisis affecting cleantech VCs?

Investments in capital intensive companies relying on the free flowing credit markets and a near-term IPO as an exit are going to be in trouble. We saw many companies that had great technology but only worked as an investment with large amounts of cheap debt. We would expect to see some write-downs in that area. On a positive note, the current economic crisis will present a great opportunity for late stage VCs with capital at the ready as valuations are likely to contract over the next several quarters.

3. What excites you about cleantech venture capital right now?

There are several things that excite us about Cleantech. We continue to be very pleased with the investments our “pure-play� managers are making. In many cases they are finding great late stage companies that have been bootstrapped to date. Many of these companies have a reasonable amount of revenue and are proprietary investments. We also get excited about how broad the space is. I have seen great diversification across alternative energy, water, batteries, green building, lighting, waste to gold, etc. Lastly we get excited about how global the opportunities are. We have made investments in the US, Canada, China, Europe, and Israel. Each adds diversification to our portfolios and brings something to the table like water expertise out of Israel or battery technology out of China.

4. What attributes are you particularly looking for in fund managers right now?

Experience, deal flow, ability to add value/grow business, late stage focus, no/low tech risk. We are still very much focused on the “pure-play� managers. As we have a diversified VC FoF as well as a CT FoF we see much more promise thus far from our pure-play managers. That is not to say the generalists aren’t working hard to get up to speed but for now from a deal flow, industry knowledge and overall experience we like the “pure-play� managers much better for CT investment.

5. What’s next for Piper Jaffray’s Private Capital Team in regards to cleantech?

We will continue to build what we believe is the best cleantech fund of funds business worldwide. Having been looking at CT managers since 2003 and launching the first US based CT fund of funds in 2005, plus an affiliation with a leading global Cleantech investment bank, we think we are positioned well. We are actively investing out of our Cleantech Co-Investment vehicle. A couple of our recent investments are Ecore International and Miles Electric Vehicles. ECORE manufactures and markets innovative, sustainable products and solutions for the construction, consumer, commercial, industrial and sports and leisure markets worldwide. We believe Miles will be the first 4-door electric car sold in the US for the masses.

We’ll continue to bring in perspectives from the various cleantech VC participants in future posts, including from other LPs, so stay tuned…