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SHOULD YOU DIG FOR MINING STOCKS?pg38

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11

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I Cleantech I

BY ANAGH PAL

GAIN FROM GREENterm from 'greentech' by virtue ofbroader market economics, greaterfinancial upside and sustainability. (Forthe different industry verticals undercleantech, see www.research.cleantech.com/browse-taxonomy. )

Cleantech is, thus, not just about pro-viding a solution to customers; it's aboutdoing good to the environment and gen-erating attractive returns at the sametime. However, for all its potential. thesector has not exactly taken off becauseof some of its inherent peculiarities.The funding requirement. "Many clean-tech companies successfully cross all the

,Technology that doesgood while rakingin profits is a smartbusiness opportunity

Back in 2008, financial ana-lysts Merrill Lynch predictedthat the world was on the cuspof the 'sixth revolution',

which would rival the industrial revolu-tion and all technological leaps. "Webelievecleantech is at the beginning of ahigh-growth period, much like comput-ing was in the early 1970s," StevenMilunovich, cleantech strategist for thefirm, had said, adding that it would lead

to significant long term investmentopportunities beginning 2010-11.

Three years and one rather messyfinancial crisis later, experts are stillbet-ting on the huge potential of the sector.With the world grappling with high oilprices, global warming and shortage offossilfuels, few will disagree.

Cleantech Group, a market intelligencefirm on cleantech innovation explainscleantech: "represents a diverse range ofproducts, services, and processes, allintended to provide superior perfor-mance at lower costs, while greatlyreducing or eliminating negative ecologi-cal impact, at the same time improvingthe productive and responsible use ofnatural resources". It distinguishes the

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purificationand of municipal and electrical grid more ~conservation industrialwaste efficient YlW'll. .' , ," '.' ~Clean energy gen- Lighting: Efficient Distributed power' . IF ance corporatIon YIYlYl'eration: Solar,solar street lighting, generation ~thermal,windand commercial lighting, technology: De- ~~biomass industrial lighting ?entralised.electric- Fusiontech Ventures ani.Energyefficiency: Smart grid technol- Itygeneration from ~~hventUres.com .Reducing ogy: Application small sources for . ..' . . .A umen Fundenergyconsumption Q\ remote villages . kaar ~r ~enture Part-through ~ Rural energy AaVlsh~=:menfu~Bessm e capital Fundswaste heat <i>ffi

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30 OUTLOOK MONEY .10 AUGUST 2011 . wwwoutlookmoney.com

Graphics VARUNVASHISHTHA

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VISHAL KOUL

~ technology hurdles, but stumble when itcomes to the market," says MadhavanNampoothiri, senior consultant, Energy

, AlternativesIndia,a consultingandresearch group dedicated to renewableenergy and cleantech.

In comparison to IT start-ups, cleantech projectsrequirehigh investment j

upfront. '~cleantech

Iinfrastructure projectneeds a large invest-ment in capital expendi-ture; equipment or serviceproviders requires funds formanufacturing facilities while early stagecompanies want capital for R&D,"saysSandeep Singhal, co~founder,NexusVenture Partners.

Lack of early-stage funding. "Early stageinvestor interest in India is sporadic, butsome USangels (of Indian origin) investdirectly in companies in India," saysSanjoy Sanyal, director, New VenturesIndia, which provides business develop-ment services to environmentally focusedSMEsin emerging markets.

Being a relatively new field,cleantechhas not gathered critical mass in thisrespect. Those who burnt their fingersduring the financial crisis, saysNampoothiri, would rather invest in

ASHOK D.PARANJAPE 55SHIREESMB. KEDARE(R) 47Nameof Company~~.~g.~.~..~~~.~.~

What they do:Develop solar thermal energytechnologies for heating~~~.~~.I.~~~.Founded in2000

Their advice to CleantechEntrepreneurs. Go to the market as fastas possible. Use feedbackto innovate.. Choose partners who canbring complementary skills tothe business.

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http://digital.outlookmoney.com.10 AUGUST2011. OUTLOOKMONEY3'

I Cleantech I

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"later stage businesses that promise saferinvestment and short-tenn returns".

In view of the state of the economy,angel investorswho had banked onegressstrategies-instead of waiting forthe long term-haven't been able to pulloff successfulexits. Says Ani! Paranjape.director,Fusiontech Ventures. India's sole'cleantech-only' early stage fund, "Someof the investments were made in me-too

fashion and the companies faced a similarset of problems".Other funding sources. In comparison toequity funding, debt funding is more easi-ly available in the early stages. Banks, forinstance, fund cIeantech projects, oftenunder loan agreement deals with foreignbanks. In India. the InternationalFinance Corporation (a part of the WorldBank) has bankrolled several cIeantechprojects, including Azure Power andHusk Power Systems. through debt-equi-ty financing.

The Ministry of New and RenewableEnergy (MNRE)foots up to 50 per cent ofthe project costs for certain renewableenergy projects. It partly funded an R&Dproject for Clique Solar. which has devel-oped a solar dish that helps reduce fueland carbon emissions in heating andcooling processes. Gujarat promotescIeantech companies, but mostly focuseson renewable energy.Availabilityof research infrastructure."There is also a lack of labs and testingfacilitiesfor entry levelfirms," says KunalUpadhyay,CEO,Center for InnovationIncubation and Entrepreneurship. whichis working with the Union government inthe cIeantech space. .~ early partner-ship with the right institution or compa-ny can be very helpful," says AniruddhaSharma, of Carbon Clean Solutions(CCS).a company founded in 2009 bytwo lIT graduates to help power plantsand industrial utilities reduce their car-bon emissions.

The promise ahead. The future, though,is lookingup. Manoj Gupta. who handledNexus's cIeantech portfolio till recently.says. "In the next two-three years thefunding scenario will again become veryexciting." It is thus a good time to startwork for sustainable and scalable cIean-

tech enterprises in order to seek fundingin a couple of years.

THE SUCCESSPRINCIPLES

<DLook to build a business that

can sustain itself in the longrun without subsidies, even if they arerequired to get the business going. Donot bank on future subsidies.

'!JA Develop an ability to work with~ politicians and bureaucrats asthe sector has a lot of regulations andgovernment involvement.

~ Ensure that you are adequately~ funded and have sufficient

long-term working capital, especiallyfor ventures that require a lot of R&D.Look for investors who are knowledge-able about the cleantech industry, and

avoid capital-intensive projects unlessyou are sure how they can be funded.

0 Consider timeframe for an op-

portunity to get commercialised

and start ge.nerating profits.A Adapt to new trends andV demands. Ensure that the corecompetencies you provide are broadenough and can change with fast-changing technology.

0 Focus on particular solution, a

particular geography and a par-ticular set of customers to begin with.

Ii' Study the market and industry.'=' Learn from others' mistakes bytalking to existing players in the sameand related fields.

'i' Educate the consumer. This\!J is the key especially if you areworking in the area of execution. Whileenergy efficiency will work for B2B cus-

tomers, energy availability could bethe thrust in case of B2C businesses.

How you pitch your product is also im-portant, as the consumer needs to seevisible economic benefits along with aviable solution to an existing need.

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"More than funding, the entrepreneur,the technology, and the right businessmodel are critical," says Paranjape, sug-gesting that if all these factors in place,VCscould be agreeable to early stagefunding. CCS,for instance, has receivedearly-stage funding from global investors.The role of the government. This sectordepends rather heavily on governmentregulations and policies.The NationalSolar Mission, which envisages aninstalled solar generation capacity of200.000 MW by 2050 on the back ofthousands of crores of rupees in govern-ment investment, has given a huge boostto the solar power sector. Initiatives likemandating power companies to source afixed percentage of power from renewableenergy sources have also helped. MNREhas a set of subsidies for different busi-

nesses in this space. However, a lack ofclarity on several issues continues to con-fuse entrepreneurs.

Siddharth Nautiyal, director, BessemerVenture Partners India, says, "There hasbeen a fair amount of policy flux in thisspace. Businesses have to ask themselvesif they will make money in the currentscenario, not look towards future subsi-dies or policy changes."Consumerawarenessand education.Cleantech customers, warns Nexus'sSinghal. "will demand the same quality(as they from conventional technology),will negotiate as hard on price and willnot care whether you are doing good".

So it is necessary to demonstrate adirect. visible econoImc impact. The prod-uct pitch and the business model are cru-cial in this scenario. While B2C set-upstend to work well if the entrepreneur issolving an energy availability problem-specially in the rural areas-B2B enter-prises have an advantage as companiesare more amenable to one-time invest-

ments for long-tenn savings. "With thehelp of tax sops like accelerated deprecia-tion and the MNREsubsidy, the paybackperiod for equity investment by a clientcan be as low as two years," says ShireeshKedare, co-founder. Clique Solar.

Upadhyay sums it up: "The challengesare many, but the opportunity is big."So. those who start early will have theearly-mover advantage. 0

anaghpal@outlookindia.com

32 OUTLOOK MONEY .10 AUGUST 2011 . www.outlookmoney.com

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