What We Do:
We partner with institutions or family offices that believe in the return potential of sustainability while also having a certain strategic or value-add component that can benefit the potential investee companies.We then tailor an investment program around an investment strategy that is centered around maximizing the value add component for the green innovation investee companies. We contribute our “skin in the game” through taking a a percentage of the GP share of the fund and make investment decisions together with the partner. We believe in portfolio concentration as we spend maximum time and resources to magnify our value-add with our investee companies through leveraging our respective networks and taking vetted concepts to project completion for our companies. EMS Capital partnered with the Tsinghua University Science Parks (TUS) for our first green innovation fund, which we closed in early 2018.
Why Invest in Green Innovation?
As we considered our green innovation investment strategy, there were a number of considerations that gave us pause:
In addition, there were a number of other daunting business model factors in clean-tech which have been well written about: the capital intensity; extended development and sales cycles; often imperfect and complex process solution alternatives in industries that already “worked”; and lastly the fact that in clean-tech we are generally dealing in the treatment of commodities that have low priced market benchmarks, such as electricity, water, solid waste recycling and other well tread areas etc.
However, we saw a number of favorable trends that caused us to look forward, not backward:
We partner with institutions or family offices that believe in the return potential of sustainability while also having a certain strategic or value-add component that can benefit the potential investee companies.We then tailor an investment program around an investment strategy that is centered around maximizing the value add component for the green innovation investee companies. We contribute our “skin in the game” through taking a a percentage of the GP share of the fund and make investment decisions together with the partner. We believe in portfolio concentration as we spend maximum time and resources to magnify our value-add with our investee companies through leveraging our respective networks and taking vetted concepts to project completion for our companies. EMS Capital partnered with the Tsinghua University Science Parks (TUS) for our first green innovation fund, which we closed in early 2018.
Why Invest in Green Innovation?
As we considered our green innovation investment strategy, there were a number of considerations that gave us pause:
- Historical Cleantech Venture Capital returns non-existent. VC gross returns (i.e., before management fees) averaged 2.6% between 2004-2015 based on a survey of over 1000 cleantech companies (Cambridge Associates).
- Lack of Successful Models: Other than Tesla, there really were no “giga-stars” in the public markets that had emerged from start-up status.
- M&A activity low: We estimated exits rates within clean-tech VC portfolios of about 10-15% with five years or so of maturity.
In addition, there were a number of other daunting business model factors in clean-tech which have been well written about: the capital intensity; extended development and sales cycles; often imperfect and complex process solution alternatives in industries that already “worked”; and lastly the fact that in clean-tech we are generally dealing in the treatment of commodities that have low priced market benchmarks, such as electricity, water, solid waste recycling and other well tread areas etc.
However, we saw a number of favorable trends that caused us to look forward, not backward:
- Technology and Cash Payback: New materials and higher level processes, have led to compact, smaller scale industrial process systems. We saw the potential for distributed processing, i.e., the processing could be placed at the feedstock source, thereby eliminating transport and other related handling and logistics costs; while communications networks enabled remote monitoring and operations. For a commodity products business, the operational and cost impact is huge and can bring cash payback within a relatively short period of time.
- Globalization: the US, by itself, cannot make a whole market for environmental protection and de-carbonization technology companies. However, China and India, as well as a mature European market brought expanded expanded opportunity. Furthermore, European multinationals, not American, were in the lead in formulating their green strategies.
- Multiple Funding Sources: While the VC funding is thin, there are a number of alternatives including government grants (DOE and state sources), strategic investments, and project finance.The latter alleviates some of the equity dilution pressures during commercial ramp-up.
- Leadership: The often times mission driven founders have been complemented by increasing business talent. The difficulties at some of the major corporate players in the clean-tech space has led to a talent influx for the green innovation sector.