New Private Clean Tech Performance Data Fills Gap and Helps Investors, Entrepreneurs and Decision-Makers Navigate This Sector
BOSTON, MA (April 24, 2013) – Cambridge Associates, a global institutional investment advisor, has developed a quarterly report that evaluates the company-level performance of private investments in the clean tech sector. Statistics from the initial report, pulled from Cambridge’s proprietary performance database of over 5,000 private investment funds and their underlying portfolio companies, address the need of investors and key decision-makers for robust performance data in this high-profile sector.
Cambridge defines the clean tech sector as companies and projects that develop nonfossil-fuel energy sources; promote industrial efficiency by conserving resources and replacing existing processes with less polluting alternatives; recycle waste effectively and efficiently; or provide a product or service that improves the environment.
Filling an Information Gap
“While the investment performance of publicly traded clean tech companies is more clearly documented, public investments are only part of the clean tech story. Investments in clean tech via private sources, such as venture capital and private equity funds, have played an important role in clean tech research, development, manufacturing and scaling. Yet, despite tens of billions of dollars invested in private clean tech, broad and representative data on the performance of these investments has been hard to find. This information gap makes it challenging for investors and entrepreneurs to make informed decisions,” said Richard Carson, Director of Benchmark Services at Cambridge Associates.
“Our new Clean Tech Company Performance Statistics are designed to address this need,” he added.
The Clean Tech Data Set
To develop the data set, Cambridge mined the over 65,000 investments in the firm’s private investment database and identified 1,222 clean tech investments across 644 private companies. These investments, representing over $21 billion in capital, were drawn from 302 venture capital funds and 106 private equity funds. Nearly three-quarters of this capital ($15.8 billion) was invested in U.S.-based companies. Investments in developed markets outside the U.S. accounted for 17.5% of the sample ($3.7 billion) and investments in emerging markets accounted for 8.4% ($1.8 billion). Of the sample, 89% received initial funding since 2005.
Performance of Private Clean Tech Investments
According to the statistics in the report, the clean tech private investment sector produced a gross internal rate of return (IRR) of 6.6% and a gross total value to paid in capital multiple of 1.2x since 2000. Of the 1,222 investments, 273 have been fully realized (22%).
“The gross company-level return of 6.6% provides a broader view than focusing solely on the successes and failures of particular high-profile companies. While the sector is young, so far overall clean tech returns have been below what institutional investors expect from their private investments. This is true particularly after investors pay fund management and incentive fees, which are not reflected in these gross investment-level returns,” said Nathan Mazonson, an Associate Consultant at Cambridge Associates. “We look forward to expanding our clean tech coverage and monitoring sector performance as it evolves.”
By way of comparison, the aggregate gross company-level IRR for over 38,000 global venture capital and private equity investments made over the same time period was 15.2%.
Among other performance insights:
- For the purpose of this report, Cambridge divided the clean tech sector into four sub-sector groupings: renewable power manufacturing, renewable power development, energy optimization, and resources solutions. Renewable power development has been the strongest performing sub-sector group to date. Relative to the other groups, renewable power development generally involves less technology risk, suggesting that so far investors have not been adequately compensated for taking greater technology risk.
- U.S. private clean tech investments have slightly outperformed ex-U.S. private clean tech investments.
- Eighty-nine percent of the investments in Cambridge’s sample received their initial investment since 2005, underscoring that the sector is young. (The fund life for a venture capital or private equity fund is generally 10 to 12 years.) Therefore, caution must be applied when drawing forward-looking conclusions from the data.
Some considerations for investors evaluating the clean tech sector include:
- Headwinds. Over the last decade, the clean tech sector has experienced a speculative boom and also a painful contraction. Headwinds have included longer fund cycles due to the recession; uncertain IPO markets; a period of too much capital chasing too few good investments; a clean tech learning curve for investors and entrepreneurs; changing competitive dynamics such as lower natural gas prices and the ramp-up of Chinese solar manufacturing capacity; and shifting and uncertain regulatory incentives.
- Evolving Investment Landscape. The universe of active clean tech investment managers has shrunk due to the sector’s challenges, which should result in a healthier dynamic in terms of capital supply and demand. Managers with a continued focus on clean tech seem to be adapting their strategies to take advantage of opportunities that may be better suited to the venture capital and private equity model.
- Opportunities. Fundamental global trends of population growth and increased resource use per capita are likely to continue, driving the development of new and more efficient technologies to meet increasing energy and resource demand. Despite this potential, clean tech private investment performance to date reinforces the fact that building exposure to emerging sectors requires careful consideration and construction. As always in private investments, manager selection is crucial to performance. As investment strategies evolve, Cambridge will continue to monitor the sector’s development and performance in search of potential market dislocations and compelling opportunities.
The clean tech company performance statistics referenced in this release are available online at https://capublic6.wpengine.com/proprietary_benchmarks.html.
To schedule an interview with the report’s authors, please contact Frank Lentini, Sommerfield Communications at +1 (212) 255-8386 / Lentini@sommerfield.com.
About Cambridge Associates
Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves over 900 global investors and delivers a range of services, including investment consulting, outsourced portfolio solutions (through CA Capital Management), research services and tools (Research Navigatorsm and Benchmark Calculator), and performance monitoring, across asset classes. Cambridge Associates has more than 1,000 employees based in eight global offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore; Sydney; and Beijing. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information about Cambridge Associates, please visit capublic6.wpengine.com.
Sommerfield Communications, Inc.