Cleantech-related investment funds may seem commonplace these days, but
Founder and Principal Chris Erickson last month raised $32 million for the firm’s second fund. Limited partners include Asahi Glass, Umicore, Bekaert, BASF Venture Capital, Solvay, Ciba Specialty Chemicals and Toyota Tsusho America.
Erickson recently sat down with PE Week Senior Writer Alexander Haislip to talk about the rise in cleantech funds and other matters.
Q: What was the limited partner appetite for cleantech?
There are certainly a lot of cleantech funds in the market raising money. I don’t think it’s easy, because of the competition. Money is still flowing into it, though. It seems like every week there’s a new cleantech fund or an existing fund that’s opening a cleantech practice.
If anything, there’s going to be a shortage of cleantech talent. There are some funds that want to get into cleantech, but you can’t turn a software VC into a cleantech VC overnight. I am concerned about that, having people putting money to work who may not know what they’re doing.
Q: Are cleantech fund sizes creeping up?
Funds that were doing early stage are now raising funds of $300 million of $400 million. But they are not focused on doing investments in technology coming out of universities and early stage. We’re not nearly that big, so we are capable of doing early stage deals that can be seeded with $3 million instead of $40 million to $50 million rounds.
No doubt, project financing to build plants needs to evolve in the cleantech space, but there also have to be early stage funds that look for things in universities and work with researchers to build ideas.
Q: Why do startups often have a tough time making materials innovations work as a business?
Innovation in advanced materials can take longer than other areas to develop and adoption from big companies can take a long time. Scale-up is another issue. It can work well in a lab, but try to do it with tons of material and things change and may not be as cost efficient.
Q: A lot of big businesses are working with universities to try to get a hold of cleantech materials innovations before a startup takes hold. Are you seeing that type of competition?
A: We’ve got some LPs that are doing that. We’ve gotten a lot of deal flow out of universities and we haven’t seen much competition.
I haven’t seen the valuations skyrocket in the same way prices for later stage cleantech deals are. If big companies are putting money into universities, it’s going to go to building labs and hiring graduate students.
I welcome it.
Q: Is there a financing gap between proof of concept and commercialization?
It’s been an issue. For a lot of these early stage companies that get funding from us, if the product commercialization means building plants, you can either get the project financing. Or, if you can’t get the financing, you have to sell the company.