Show us the clean money

8 May 2007

Just how much money is available for clean tech entrepreneurs? If you listen to US investors, the sector is sucking up funds right now - so why are levels of European investment falling?

According to Cleantech Goes Mainstream, a report from Library House published at last month's Essential Cleantech conference in London, investment in cleantech across Europe totalled over £270 million and 102 deals in 2006. This is actually down on the £322 million invested in 2005, the peak in European cleantech investment, and it also pales in comparison to the $2.4 billion invested in US clean techs last year.

British entrepreneurs can take some comfort from the fact that 40 per cent of European VC-backed cleantech companies are located in the UK. However, it's worth bearing in mind that 45 per cent of these received public sector support - from bodies such as the Carbon Trust and DTI R&D grants - compared to a European average of 14.7 per cent. And this figure increases to 50 per cent for deals in the £200,000-400,000 bracket, highlighting VCs' reluctance to get involved in early stage cleantech businesses.

What's more, a significant number of European investments were made by US-based VCs - in fact, there were more investors from the US than any European country apart from the UK. And very few involved specialist cleantech investors, with 3i Group topping the list.

The Library House report calls for greater public/private sector investment. 'In general, there appears to be a positive relationship between the level of public sector engagement with early stage cleantech companies and the number of these which ultimately receive venture capital backing,' says the report. NESTA (the National Endowment for Science, Technology and the Arts), for example, has just launched a £50m fund for start-ups in cleantech, ICT and healthcare, which is designed to attract private sector money to young companies.

The problem for investors isn't a lack of truly innovative ideas out there - they clearly exist. It's more that so much of the technology is unproven - or at the 'science experiment stage', as Neil Rimer, co-founder and General Partner of Index Ventures, put it.

As always, entrepreneurs can help themselves when it comes to attracting investment. A Forum for the Future report, Clean Capital, backed by the government and the City of London, advises cleantech entrepreneurs to improve their investment-readiness - for example, through building an experienced management team and viable business model, improving their financial reporting, and exploring partnership options for R&D, manufacturing and distribution.

If it looks like a long journey ahead, Forum for the Future argues that the slog will be worth it. 'In 10 years time, clean techs will be taken for granted in mainstream business models in the same way IT is now.'

By Alison Hjul