Tuesday, May 22, 2007

Conversation with Michael DeRosa from DFJ Element

To continue to gain insight into how VCs are thinking about CleanTech, I spoke with Michael DeRosa from DFJ Element.

Executive Green: How do you define CleanTech?

Michael DeRosa: CleanTech is an investment theme, not an economic sector. CleanTech is the minimization of resource usage in raw materials and raw material intensive industries. CleanTech is not limited to environmental tech, although a healthy environment should be seen as a limited resource in and of itself.

EG: Why has investing in CleanTech become so popular?

MD: A number of factors--including the growth of underdeveloped countries and the increase in global population--are putting greater demands on the planet’s resources, creating the economics of scarcity.

EG: What are the biggest changes you have seen in CleanTech investing?

I made my first investment eight years ago, when only a small number of investors were financing deals, and no one was using the term CleanTech.

The availability of funds has changed the types of investments made. Our initial projects were limited in scope because there was a shortage of capital. But in today’s market, companies requiring intensive amounts of capital for their product/service to reach end users can find funding.

EG: Why is it a good time to invest in CleanTech deals?

MD: A number of market conditions make it a very good time to invest. China, India, and other developing nations are consuming resources at greater rates. The increasing price for Carbon-based energy production is driving the market to find alternative solutions. In addition, entrepreneurs are responding with new business ideas to meet increasing demand by consumers, corporations, and some government organizations for products/services that minimize the use of resources.

EG: Do you think any categories in CleanTech are overvalued today?

MD: My concern is that to some people CleanTech only refers to solar and biofuels. Some valuations are being pushed up just by the number of companies that have exited successfully in a space and not by the intrinsic value of the new companies getting funded, which in part could be inversely correlated to the number of previously successful exits because of competition.

EG: Are there any adverse effects for the venture community if there is a correction?

MD: I am worried that some established generalist funds that were very successful in information technology will fail miserably in CleanTech and this will lead some limited partner investors to think that CleanTech itself is not a good opportunity for a group that knows the area well.

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