The National Venture Capital Association recently released data for 2008 venture
capital investments. Venture capital firms invested $28.3 billion in 3,808
companies in 2008. This represents an 8% decrease in dollars and a 4% decrease
in deal volume from 2007.
One big bright spot is clean tech.
Venture capital firms invested $4.1 billion into 277 clean tech startups in 2008, a 52% increase from 2007. Popular investments include solar, biodiesel, nuclear energy, and battery start-ups.
When we step back and try to view these investments over the long-term, it becomes clear that only a handful of these start-up companies are going to become extremely successful. Only a few of them will dominate their marketplaces and become the "Googles" of solar, wind, water, and biodiesel.
While the majority of individual investments into start-up companies will fail, the asset class as a whole has historically produced superior returns to most other alternatives. Seed stage and early stage venture capital investing has achieved historical 20 year returns of over 20%. The asset class as a whole is only able to achieve these returns by investing in a handful of "home runs" -- the startups that grow to be multi-million and billion dollar acquisitions and IPOs.
Despite what the admittedly brilliant minds on Sand Hill Road in Silicon Valley would have us believe, it is nearly impossible to predict which of the hundreds of thousands of promising new companies launched every year will become the "next Google" of their industry.
That's why diversification is a critically important "best practice" for successful venture capital and private equity investing. As such, the investor's goal should be to aggregate positions in several promising early stage companies in order to improve the chances of finding that "Black Swan."
And as the public stock markets take a beating, real estate continues its downward spiral, and cash is endangered by the long-term threat of inflation as a result of record U.S. government deficits, we at Growthink believe that the early stage private equity asset class is among the most attractive long-term investment alternatives available to qualified investors.
To learn more about our perspectives on this subject, we welcome you to attend our webinar:
Webinar: Keys to Successful Private Company Investing
To register, click here: http://www.growthink.com/livedeals
Last week, we talked about how entrepreneurs, who serve a crucial role in growing an economy, have been shortchanged by the proposed stimulus package.
See our previous post: How Entrepreneurs are Key to Job Creation.
Now, as the Wall Street Journal reports, many individual states are planning to harness the energy of entrepreneurs in an effort to jumpstart the economy.
Maryland is tackling the issue head on by allocating over $70 million for programs to support small and minority owned businesses, and $15 million for heath insurance at such businesses.
The approach in Florida includes low interest rate loans for small businesses with less than 100 employees. Loans up to $250,000, that would be purposed for everything from expansion to new salaries, would be available at a 2% interest rate.
In New Jersey, to spur expansion and hiring, a stimulus plan includes grants and tax incentives. $3,000 is available for small companies that hire an employee and keep them for a year. Sales tax credits are being considered for capital investments that exceed $5,000.
Similar tax incentives are being considered in Colorado, Arizona, and Minnesota.
Such considerations at the state level are a step in the right direction, and signal recognition, at the government level, that entrepreneurs can and will play a significant role in reinvigorating the American economy.
As the House rushed to put the $819 billion economic stimulus package in place, Congress may be overlooking one of the most critical components to creating new jobs: entrepreneurs.
The stimulus package is chock-full of plans to stimulate job creation though public works and projects. However, a study by Grant Thornton recently released to the US Department of Commerce Economic Development Administration reports that investing in business incubators, which support young companies and entrepreneurs, is a more effective strategy for creating jobs.
And the numbers are staggering. Here is a look at what a government investment of $10,000 accomplishes in different sectors:
Business incubators create jobs at an expense as low as $144 per job -- almost 10 times less than road and transportation projects, which typically cost more than $1,200.
This data, while surprising to some, supports what we’ve always believed here at Growthink: That the American entrepreneurship isn’t just one piece, but the most important piece of our economy.
If you're looking to start your own business, you need to learn the main components of a business plan before you start. Keep that in mind before you begin putting your plan together.
Related post: President Obama and Entrepreneurship
Earlier this week, Growthink's Co-Founder Dave Lavinsky spoke with Dave Humphrey, COO and Senior Investment Professional for Oklahoma Equity Partners, based in Tulsa OK. Humphrey has served as a principal at Davis Tuttle Venture Partners (the oldest VC firm in Oklahoma). Also, in over 10 years with Koch Industries, he led $300+ million of expansions and acquisitions, and served as the CEO of a $200 million business where he increased profitability by six-fold.
You can click here to listen to the entire interview: http://www.growthinkuniversity.com/public/248.cfm
In the interview Dave discussed how networking plays a role in both capital raising and bolstering a management team, as well as a way to approach financial projections that will show investors your true capacity to execute on a market opportunity.
Also discussed are the 3 key elements that Humphrey looks for in every business plan.
To listen to the interview, visit this link: http://www.growthinkuniversity.com/public/248.cfm
We welcome you to attend our webinar "How to Successfully Invest in Venture Capital and Private Equity."
In the webinar, Growtthink's CEO Jay Turo provides an overview of venture capital and private equity investing, including commentary on current market conditions (credit crunch, decline in stock market, real estate bust) as well as private equity investing "best practices" for success in the current environment.
During the webinar, Jay provides his perspectives on:
Use this link to learn more and reserve your spot:
Are you an entrepreneur looking to raise capital from private investors? With Growthink's Private Placement Memorandum Template, you can finish your PPM quickly and easily, so that you spend less time "preparing," and more time speaking with investors.
All stereotypes aside, I’ve never heard an Australian utter the above words with the exception of the highly-paid voice over artist for Outback Steakhouse. And possibly Paul Hogan in his notable performance as "Crocodile Dundee" (only the first movie, of course – the sequels aren’t worth mentioning).
No matter where said stereotype originated, what I do hear emanating from Down Under is a keen series of statements reflecting how happy our Australian friends are to be doing business in America. After two weeks traveling and attending events, all – oddly – involving Australians, I had to wonder why entrepreneurs from south of the equator were more positive about the investment environment than we are: the ones who live, work, and dream in a Country where anything is possible. Whatever the reason, I’m inclined to eat a bloomin’ onion for dinner.
The companies with which I’ve been meeting span the industry spectrum, from consumer electronics to video games, multi-media, and entertainment. In each reside a spirited CEO and management team, all of whom endeavor to make their places in the States. For many, it will be their first foray into the American investor market; for others, who’ve been building a life here for several years, it is their third or fourth company after several successful prior exits. And yet, in what we all know is a recessionary economy, all are seeking or continuing to seek opportunities here.
Nowhere else. HERE. Why?
Because they want the same thing every domestic entrepreneur wants: the chance to fulfill a dream, to create a successful business, and to retire to a large, beautiful island. Wait… the Aussies already have one.
Nevertheless, my idea-generating friends, the point is that we need to again find our spirit, our confidence, and our joie de vivre. Entrepreneurs from all over the world know that the United States is the place to come to cultivate relationships and to secure growth capital. The current economic “ebb” has an effect on the entire planet, yet those who wish to prosper still look to us for guidance. Perhaps we should not lose sight of that very basic fact.
I think actress Rachel Griffiths said it best, with comedic proportion, when being honored at the G’Day LA gala dinner last week (I do not quote verbatim, since I was wielding flatware in lieu of a pen): “I never thought I would do American TV; now I’m doing a Network series. I never thought I’d live in America, now I’m married to an American. I never thought I’d have children in America, now I’m breeding Americans. And I have to say: I will always be Australian but I’m PROUD to be breeding Americans!”
What does it really mean? I wasn’t entirely sure at first, but it made us laugh. And as I sat there, surrounded by her Countrymen, it hit me: as much as I jest above about barbequing shellfish, Ms. Griffiths was jesting as well. Stereotype or not, Hollywood provided her the opportunity to expand her career. She seized upon it and is ultimately thankful for what it provided her.
Many follow the same path – rising star or layman – to this land where those who seek their good fortune have a chance to be thusly rewarded. It may not be easy, but it IS and will ALWAYS be possible for people with ideas, talent, tenacity, and enough hope to see the light at the end of this tunnel we call a recession.
Sometimes things are so obvious as to be hard to see.
That is certainly the case right now with the incredible flood of federal stimulus pouring into the economy - both in terms of fiscal and monetary policy. But saying it in this way, as it is often done by the chattering media classes, makes the issue unnecessarily opaque and complex. We agree with Milton Friedman (and not just because of his long Stanford connection) when he describes inflation as "always and everywhere a monetary phenomenon."
Clean technology (“cleantech”) is one of the fastest growing areas of investment within the venture capital and private equity community, showing constant growth since 2003 and accounting for 7.4% of total venture investment in 2007. According to data compiled by Cleantech Group, LLC, the 3rd quarter of 2008 saw $2.6 billion invested in 158 deals in the sector, with total investments in 2008 projected between $7.6 and $8.1 billion. This represents 30% growth in comparison to 2007’s $6.01 billion, $2.2 billion of which was invested in U.S. companies.
The cleantech category is comprised of a variety of subsectors that represent products, services, and technologies created to reduce greenhouse gas emissions, develop energy independence, promote energy efficiency, and conserve natural resources. Subsectors within the category include:
- Solar, wind, biofuels and geothermal energy generation
- Infrastructure to support alternative energy generation
- Energy storage (batteries, fuel cells, etc.)
- Agricultural productivity and natural pest control technologies
- Materials and manufacturing processes requiring less resource intensive inputs
- Pollution control, recycling, clean coal, and wastewater/water technologies
Despite the economic downturn, cleantech is one of the only sectors still projecting investment growth, particularly once President Elect Obama takes office tomorrow. Obama’s energy plan calls for a $150 billion investment in clean technologies over the next 10 years, aggressive targets for greenhouse emissions reductions, and programs to promote energy efficiency, low-carbon biofuels, and renewable energies. Obama has also called for a national Renewable Portfolio Standard (RPS) requiring that utilities generate 10 percent of electricity from renewable sources by 2025. New mandates, tax incentives and the recent Energy Independence and Security Act of 2007 will continue to drive domestic growth within the sector.
Internationally, interest in cleantech has grown in countries around the world, particularly in the Middle East, Europe, and China. Sovereign wealth funds from countries in the Middle East were involved in six of the top ten largest financings within the cleantech sector in the 3rd quarter of 2008. More specifically, countries such as Qatar have been raising funds solely for cleantech, such as the recent $396 million Qatar Investment Authority cleantech fund. The European Union has targeted 20% of its energy to be derived from renewable resources by 2020 and China has targeted 15% under its Circular Economy Law. As new regulations are put into effect globally, particularly in emerging markets such as China, demand for innovative energy sources and cleantech solutions will grow as existing resources are depleted.
Through its consulting and capital raising advisory services, Growthink has worked with innovative emerging growth companies across all of the various cleantech sectors. Through this unique combination, Growthink is able to provide cleantech entrepreneurs with the perspective required to identify and capitalize on prevailing trends in their respective markets and industries.
If you are an entrepreneur or a potential investor seeking more information about investment opportunities within cleantech, contact us at (800) 260-6630.