Despite a public commitment from the European Union to lead the fight against climate change Europe is lagging behind the US in terms of venture capital investment in clean technology, according to new research released yesterday by investment research firm Library House.
The report entitled "Cleantech Goes Mainstream" found that while overall investment in clean technology companies is increasing with over £270m of venture capital invested in European Cleantech companies last year the continent is "increasingly lagging behind the US".
Recent data from investor group Cleantech Venture Network supported these claims, finding that while US venture capital funds invested over $800m in the second quarter of 2006, representing 13 percent of the total market, their European counterparts invested just $120m.
The report also found that the lack of European backing was creating an opportunity for US investors to fill the void, with US-based venture capitalists participating in more European cleantech deals last year than investors from any European country bar the UK.
In fact the UK was the dominant source of clean tech investment in Europe, with 40 percent of all European venture capital backed cleantech companies based in the UK. The report argued that the greater availability of capital in the UK was being driven by government support with almost half of UK cleantech deals having received public sector support.
Jonathan Kestenbaum, CEO of the National Endowment for Science, Technology and Arts (Nesta), which recently launched a £50m fund aimed at environmental, healthcare and ICT companies, said that the relative success of the UK was evidence that greater government support was required across Europe to stimulate investment in early stage clean tech companies. "We need to see more public funds acting as trailblazers by partnering with other investors and by taking risks with the kind of innovative entrepreneurs who may be able to provide solutions to some of these [environmental] issues," he said.
Speaking at its inaugural cleantech conference, Library House CEO Doug Richards argued that with venture capital investments proving three times more effective at increasing gross economic growth and driving innovation than other forms of investment the development of the European cleantech sector was being hampered by a lack of support from specialist investors.
"We need to see even more investment from public sector and also private venture capital firms," he said. "For investors, there is a significant opportunity in the sector as cleantech companies offer a rich vein of opportunities. Many early venture capital investments in the sector have paid off handsomely as investee companies have grown and exited, achieving market capitalisations of billions of euros in the process."
However, several other speakers at the event argued that the problem in Europe was not down to a lack of cleantech investment, but a lack of viable companies for venture capitalists to invest in. Both Neil Rimmer of Index Ventures and Ziad Tassabehji of the Abu Dhabi based Masdar Clean Tech Fund, claimed that the "shortage of great [cleantech] deal flow" in Europe was because "there was more money than [available] good deals".
Tassabehji also suggested that the current hype surrounding clean tech and in particular bio fuels in the US could have clouded some investors' judgment and could actually hamper the development of important green technologies. "Within weeks of the State of the Union address [in which President Bush unveiled plans for an almost fivefold increase in biofuel use] we saw countless biofuel companies emerge and in my opinion many of those companies are ridiculously over valued," he said. "Other [clean tech] subsectors like carbon sequestration, water purification and energy storage, which there are a real world need for, are seeing far slower deal flow."
Separately at the conference, Library House launched a new online subscription information service called VenturePedia Cleantech designed to address the current disconnect between potential investors and innovative private cleantech companies. Richards said the new service would track cleantech companies and venture capital deals around the world and provide potential investors with insight about how different companies, sectors and regions are performing and which companies are securing or seeking backing.
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