x Abu Dhabi, UAEMonday 24 July 2017

Clean-tech funding disappears into a cloud of IPOs

Eco-Money Fast short-term profits are driving investment in social networking companies, while green-tech firms that have a longer slog to profitability are suffering.

Investments in the US's clean-technology sector have fallen in favour of social-networking companies. John Moore / Getty Images / AFP
Investments in the US's clean-technology sector have fallen in favour of social-networking companies. John Moore / Getty Images / AFP

US venture capital is forsaking green investments in the rush to cash in on the next dotcom internet boom. As Facebook's anticipated US$100 billion (Dh367bn) share listing looms, investment funds are queuing up to put cash into social networking companies at the expense of more ecologically sound investments.

The US clean-technology sector, which comprises alternative energy, pollution and recycling, power supplies and conservation, saw a 23 per cent drop in venture-capital funding during the second quarter of this year. With the US leading in both clean technology and traditional IT, the fall in funding has raised doubts concerning the long-term prospects of green technology projects across the world.

According to the MoneyTree Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters, venture capitalists in the US invested $7.5bn in 966 deals in the second quarter of this year.

The software industry received the highest level of funding for all industries, with $1.5bn invested during the second quarter, a 35 per cent increase compared with the $1.1bn in the first quarter.

But investment in clean technology fell from $1.2bn in the first quarter to $984 million in the second. According to the report's authors, venture-capital funding follows the greenback rather than green ideologies, with funds becoming increasingly suspicious of a sector such as clean tech with so little takeover activity and little prospect of a fast turnaround.

"Social networking has made some attractive returns and money follows returns," says Tracy Lefteroff, the global managing partner of the venture capital practice at PwC.

"What clean tech needs is to see some mergers and acquisitions, initial public share offerings [IPOs] in order for funds to exit profitably and reinvest their earnings in the sector."

According to Greenpeace, the non-governmental environmental organisation, the clean-tech sector is also being cold-shouldered by venture capitalists because of the battle it is fighting with traditional energy producers.

The traditional energy producers have now sensed that energy-efficient technologies have evolved from being politically correct fig leaves on the energy sectors into potentially serious market disrupters.

Greenpeace says the traditional energy industry is orchestrating a powerful and potentially misleading campaign aimed at undermining the perception of clean tech, both in cost and in terms of sustainability. It says clean tech must fight back and not rely too heavily on public goodwill or trade associations.

"The recent IPOs are telling; clean-tech companies are not as easily turning short-term profits compared to various social networking IPOs," says Casey Harrell, the spokesman for Greenpeace. "The clean-tech industry - and its allies - need to fight harder on the policy front ... There are policy and political reasons for why the clean-tech sector is not fully operationalising its profit potential."

But dotcom investing also has its drawbacks - as many investors understood to their extreme financial cost when the first internet share bubble burst a decade ago. According to PwC, it is likely that private investors will be more cautious than venture capitalists when it comes to the current social-networking boom.

"A lot of investors learned a lesson in the dotcom crash ... Smart investors would tell you diversification is a good idea," says Mr Lefteroff. "Clean tech still has the ability to stand on its own."

Greenpeace believes that the clean-tech sector's funding deficit will be further compounded in ecological terms by the continued use of "dirty energy" by the IT industry in general. It urges shareholders in both clean-tech and traditional IT companies to press for change.

"Many of the IT brands at the vanguard of this 21st-century technological shift are perpetuating our addiction to dirty energy technologies of the last two centuries," concludes a Greenpeace report on cloud computing, an IT industry euphemism for building massive computerised data centres on an unprecedented scale.

Greenpeace says many companies are "nibbling around the edges of clean-tech investments" and should follow the example of Google, which has committed almost $1bn to clean-tech projects over the past few years.

"Given the crisis of global warming, it's paramount that industries such as the IT industry not only lower their own footprint, but provide solutions - whether it's dematerialisation, telecommuting, smart-grid technologies - that provide emissions reductions outside the IT industry, in the rest of our economy," says Mr Harrell.

Greenpeace says private investors can do much to redress the technology sector's ecological deficit.

"There's a lot of mechanisms in which they can influence IT clean-tech investments, depending on the size or role they play. Speak up, ask questions, file shareholder resolutions, ask the IT companies they invest in what their strategy is to combat their growing greenhouse gas emissions, and why they are letting companies like Google get a competitive leg up on clean energy investments," advises Mr Harrell.