Renewable and clean tech businesses whose products are only in the early stages of development have been hit hardest by the recession, as wary venture capitalists (VCs) and private equity (PE) investors take fewer risks on these start-ups.
According to a recent report [PDF - see Chapter 4 on pg 28-31] from the United Nations Environmental Programme (UNEP), later-stage companies have been more insulated from investor anxiety as VC firms aim to limit their risk exposure by avoiding investment in start-up businesses that have yet to reach profitability. In fact, one of Europe’s largest venture capital firms has abandoned early stage investment altogether.
UNEP reports that “venture funds are retrenching to positions where they feel more comfortable. In effect, this means that VC firms are moving down the value chain to seek out better quality, later-stage investment opportunities.”
Other impacts of the downturn contributing to the belt-tightening among VC and PE investors include:
- Fewer venture-backed IPOs and acquisition deals taking place, meaning that investors are having a harder time quickly recouping their existing investments and putting that money into new companies.
- Magnifying the importance of start-ups having debt financing in place (or likely to obtain). A lack of debt financing is having a chilling effect on potential investors.
While the global economic recession led to the precipitous drop in investment in Q4 2008 and Q1 2009, it has also created a buying opportunity for investors willing to commit capital. Institutional investors are anticipating huge growth in clean energy investment, indicating that some of the most enticing opportunities could very well come from this sector.
Any opinion contained in this article is solely that of the writers, and does not necessarily shape or reflect the editorial opinions of Energy Boom. Energy Boom content is for informational purposes only and is not intended to be advice regarding the investment merits of, or a recommendation regarding the purchase or sale of, any security identified on, or linked through, this site.