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May 29, 2007

GE's Ecomagination: A Panacea?

Last Thursday, General Electric's (NYSE: GE) CEO, Jeffrey Immelt, reported on the progress to date of the company's Ecomagination project.

Ecomagination seeks to position GE as a global environmental technology heavyweight, and Immelt is confident that this initiative will contribute substantially to the eventual emergence of GE's share price from the funk it's been over the past seven years.

The Globe & Mail ran an interesting piece on Ecomagination the following day. Rob Day at Cleantech Investing also briefly touched on on the topic on Monday.

The jury is still out - will Ecomagination be GE's panacea? Investors don't seem to think so thus far, but for my part I can say that I've observed GE's cleantech maneuvering relatively closely over the past 2 years and the company is undoubtedly gaining exposure to some very interesting areas.

To be continued...

May 25, 2007

Dead Wrong On Climate Exchange

In a May 8 post I opined that, although I believed that recent developments on the climate change file in the US would bode well for Climate Exchange plc (CXCHF.PK), I thought that the stock was overpriced and had had too great a run for its own good over the past 3 months. I therefore predicted that the next move the stock would make would be to the downside. Climate Exchange was trading at around $28 then, and today it is trading in the neighborhood of $36.

I continue to believe that this stock is going way too far, way to fast for what the fundamentals are telling us, no matter how much growth is forecasted to occur over the next couple of years. Nevertheless, a majority of market participants currently disagree with me, and that, in effect, makes me "wrong".

In the context of this, I thus thought I would share with you a series of emails I received shortly after I wrote the post by a regular reader who also happens to be following Climate Exchange very closely. I got the author's permission to publish these but he will remain anonymous. Enjoy!

Email 1:


I read your latest post about the world of carbon....I wanted to bring to your attention a counter argument to consider about CLE....While you are correct to say that the chart looks extended, and that the valuation looks extreme considering the paltry cash flow number, you may be overlooking one very critical factor right now.

There is deal mania right now in the world of exchange combinations....ICE and the Chicago Merc have been battling to buy Chicago Board of Trade, with Merc coming back with a very strong counteroffer this past week. The exchanges are all looking for growth opportunities at this time.

Carbon trading represents the current "new new thing" on Wall Street. Volume in the EU trading scheme is exploding, with new participants joining the party. In fact, Citigroup announced last month the formation of a European carbon trading team, and they further pledged to spend $50 billion in conservation/environmental initiatives over the next decade.

CLE represents a pure play on the growth of carbon trading in the EU. Meanwhile, CCX and CCFE (Chicago Climate Futures Exchange) are the clear marketplace leaders in the US in GHG trading....CCFE is THE exchange for SO2 trading, and their recently-listed NOx contract is off to a good start....CO2 trading on CCX is still slowly developing, but the prospects look good. Last year's total volume traded was 10mm tons. Through mid-May, CCX has traded nearly 9mm tons. At this pace, CCX should trade roughly 25mm tons for 2007. While CCX volume is dwarfed by ECX, we all know that the US is a much larger potential CO2 marketplace if/when mandatory GHG trading regulations get enacted.

So, ECX volume should continue to grow very strongly over the next several years, allowing CLE stock price to grow into its current valuation. In the meantime, the company's fortunes will skyrocket if/when US legislation comes into play. Also, don't forget that the company has several joint venture arrangements with foreign exchanges such as the Montreal and Mumbai ones to develop carbon trading platforms.

So, the growth potential for CLE is quite abundant....And, growth is what investors (both stock market investors and corporate players) seek.

Final thought for you to consider....ICE does the clearing of ECX trades, for which it receives approximately 28% of the revenues...So, while ICE may not have an equity investment in CLE, it truly does benefit from the growth at ECX. I believe they have a similar arrangement with CCX for clearing.

So, you might be right that CLE stock is a bit overvalued. If the overall market landscape should experience a hiccup, CLE stock could have quite a fall....However, the underlying fundamentals of carbon trading are clearly bullish....CLE is the purest equity play on that theme.

Don't be surprised in the next 18 months if CLE gets mentioned in the M&A world as a potential buyout candidate....ICE bought the NY Board of Trade (a stodgy old exchange focused on coffee, sugar, etc.) for approximately $1 bn last year. The growth prospects for carbon trading has to dwarf those of coffee and sugar. ECX and CCX are already electronic marketplaces with no legacy costs to have to bear in order to convert them to electronic trading....ECX and CCX are both cyber markets today. No costly real estate or maintenance expenses...

Just my two cents on an early Saturday morning.

Email 2:


One more thing to consider about CCX right now.

NYMEX made a splashy anncmt this past week how they want to introduce CO2 trading. Frankly, it shines the spotlight on the potential for growth in that sector here in the states. However, NYMEX cannot possibly hope to compete credibly with CCX at this time.

If Congress and President Bush signed mandatory GHG legislation today, it would be 3 years before a program could be implemented and be ready for trading. That leaves the voluntary market as the only proxy to trade CO2 at the moment. If such momentum develops to want to trade voluntary CO2, CCX already has the contract in place.

NYMEX cannot hope to create a voluntary contract because CCX will not license its CASH contract to NYMEX. NYMEX will be forced to create its own voluntary CASH market in order to trade CO2....CCX has spent nearly 4 years creating the rules, regulations, and auditing process to establish the market we see today....Because any scheme that NYMEX introduces will have to be voluntary (remember, no mandatory law), they will have to convince the large and growing members of CCX to abandon their successful market to come join theirs....I don't think this is likely. It is a large undertaking to design and implement the rules and regs to establish the framework of a voluntary market. Moreover, CCX had the foresight to have their market be regulated by the NASD to alleviate concerns about the integrity of the market. Frankly, I think CCX represents an unimpeachable gold standard for the trading of voluntary CO2. Very little concern about the "carbon cowboy" issue that has recently wracked the voluntary market after the big FT series of articles several weeks ago.

My conclusion.....The more that NYMEX highlights its desire to trade carbon, the more likely it is that smart investors are going to consider the competititve moat that CCX has firmly established in this arena. If voluntary CO2 trading markets begin to expand, CCX is poised to capture most, if not all, of that volume, in my view.

One more thought....CCX recently has seen very strong growth in its membership ranks. Specifically, the class of members called "liquidity providers" has grown very nicely. I take special note that Lehman Brothers recently joined as a "liquidity provider"....Liquidity providers are those companies that join in order to trade the market...They make no commitment to lower their CO2 footprint in the way that regular members do when they join.

My point is that Lehman is the first bulge bracket firm to join CCX as a liquidity provider....Goldman already owns 10+% of CLE. Wall Street is beginning to discover CLE and its family of exchanges.

Bottom line....CLE has a very bright future, despite the possibility for some volatile short-term trading ahead.

May 22, 2007

Q1 2007 Renewable Energy & Biofuels Country Attractiveness Indices

Q1 2007 Renewable Energy Country Attractiveness Indices

Ernst & Young recently released its Q1 2007 Renewable Energy Country Attractiveness Indices, a series of indices that rank countries on their attractiveness with regards to alternative energy growth and development. These indices provide good yardsticks for investors who want to know which markets offer the best near and long term alt energy growth prospects.

The report presents three main indices, whose names are fairly self-explanatory:

(1) The All Renewables Index

(2) The Long-term Wind Index (>2 years)

(3) The Near-term Wind Index (<2 years)

The report is a quick and interesting read. There were no particularly significant developments over the course of the period. China continues its ascent on the attractiveness scale, which should come as no surprise to industry followers. Environmental Finance provides a brief summary of E&Y's findings, along with some interesting forecasts.

Biofuels Country Attractiveness Indices

For Q1 2007, E&Y also introduces a new group of indices, the Biofuels Country Attractiveness Indices. E&Y describes these indices as follows:

"The [...] Biofuels Country Attractiveness Indices rank the attractiveness of the top 15 global markets for investment in biologically derived renewable fuels incorporating both ethanol, and biodiesel. The Q1 2007 edition includes individual scores for bioethanol, biodiesel, and infrastructure, plus a combined score making up the All Biofuels Index."

The top 15 stack up as follows on the All Biofuels Index:

May 20, 2007

Ethanol Stocks: Risks, Challenges, & Opportunities

The Great Ethanol Debate: Shoddy Economics all 'Round.

Like many environmentalists, I'm not a big fan of the ethanol industry, especially corn ethanol.  From a net energy standpoint, even advocates agree that you only get a little more energy out than the energy you put in (Energy Return on Energy Invested or EROEI of 0.9 to 1.5, depending on whom you ask... some say it's much lower.)  At this point, most environmentalists simply decide that ethanol isn't sustainable enough for them, and go back to talking about photovoltaics (EROEI around 8, PDF) and wind (EREOI 30-70, PDF).  The last two are from my calculations from numbers given as energy payback  (As an aside, I think most of these measures of energy economics are crude and only give a partial picture.  We should really be looking at energy net present value (NPV) or internal rate of return (IRR), analogous to economics NPV or IRR which would apply a discount rate to future energy flows, for all the same reasons we don't look at payback or similar measures in economics.)

If we did take a net present value approach to energy return on investment, we'd find that ethanol started looking a lot better, because we can use the ethanol as soon as it is made, a process which could happen within a year of the first seed of corn being planted, in comparison to solar photovoltaics, which, if they have an energy payback of around 4 years and last 30 years, will end up having and "Energy IRR" of around 12% (this number is for conventional crystalline silicon: Thin film and concentrating PV have potential to be a lot better because of lower energy use in manufacture), compared to an "Energy IRR" for corn ethanol (using a median 1.2 EROEI figure and a one year lifecycle) of 20% (although the uncertainty in this number is much larger than the uncertainty in the number for PV.) 

So the bigger problem for me is not Energy Payback, but the environmental damage associated with the way we raise corn.  Energy isn't everything.  I feel that the "low energy return" argument does not hold a lot of water.  My main problem with corn ethanol lies in the negative externalities of corn production, such as high water use, fertilizer runoff, and soil mineral depletion.  And then there's always the food vs. fuel debate, where even the IMF is weighing in.  

Is the ethanol industry a good long term investment?

Clearly, the debate on the possible benefits of corn ethanol is far from settled.  Regardless, ethanol has strong political support, and we can expect continued rapid increase in US ethanol production.  Does it follow that the industry will produce good returns for investors?  Will increases in production be accompanied by increases in profit, or will ethanol producers find they cannot sell their product at a price high enough to cover their full costs?  To answer that, we have to understand the competitive forces in play in the industry, which I will look at from Michael Porter's Five Competitive Forces Model.  The more and stronger competitive forces are at play, the less attractive the industry will be in terms of producing attractive returns on investment.  These forces are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, internal competition, and the availability of substitutes.

Threat of New Entrants

Corn ethanol production is easy to establish.  Distilling grain into alcohol has been around for all of human history, and while the techniques have been refined, the basic production process is well known.  The remarkable number of new plants being built testifies to this. This is a big strike against the long term profitability of the industry.  

Bargaining Power of Suppliers

The major suppliers to the ethanol industry are corn growers and the suppliers of process heat (often produced by natural gas, but more innovative firms are using gas from anaerobic digestion of manure from cows which also eat some of the distillers grain byproduct.)  In most cases, these are commodities, meaning that neither the suppliers nor the ethanol industry has any real bargaining power.  I consider this a modest negative for the industry, but may give competitive advantage to firms such as Archers Daniels Midland (ADM) and the Andersons (ANDE) who have vertically integrated supply chains, as well as firms who can use renewable sources of process heat to lock in energy prices.

Bargaining Power of Buyers

Ethanol is also a commodity, but it has the interesting property that it can't be shipped through the same pipelines as other liquid fuels because it's water soluble.  Hence, ethanol must be transported by truck, rail, and ship to markets that do not currently.  To me, this means that ethanol producers in the Midwest are likely to have a much harder time than ones in California, such as Pacific Ethanol (PEIX), and Hawaii, where they now have a 10% ethanol mandate, but little or no local production, despite their large sugar industry. 

Internal Competition

See my comments above about internal competition in the US industry, but the 800 pound gorilla here (especially for states on the East of Gulf Coast) is imported ethanol from Brazil.  For the moment, that internal competition is contained somewhat by the United States' punitive tariff, but if the political will to maintain that fails, Brazilian ethanol's better price structure (and better energy returns, since it's made from sugarcane) would be traumatic for the industry.  In my mind, the internal competitive outlook is not very good.

Availability of Substitutes

Ethanol is a substitute for both gasoline and MTBE.  At the moment, much of ethanol's momentum is due to the ban on MTBE.  However, many consider ethanol to be a poor substitute for MTBE because of it can increase smog formation in some circumstances.  If a better oxygenator were found for gasoline, the prospects for corn ethanol on the coasts would likely be bleak.  In its E85 formulation, ethanol is touted as a gasoline substitute, and until cellulosic ethanol becomes economic (which would lead to a new set of problems for corn ethanol, and might happen much sooner than  expected), we can reasonably expect that gasoline will generally be more prevalent than E85.  So the economics of ethanol hinge on the lack of another substitute for MTBE, which currently puts ethanol in a good position on the coasts, where MTBE was formerly used, be puts the industry at the mercy of gasoline price swings in the Midwest.


Regardless of how you feel about ethanol from an environmental or net energy perspective, the prospective ethanol investor should be very careful about investing in corn ethanol producers at random.  As I have argued here, vertically integrated producers, Californian producers, and producers who use renewable energy based processed heat may have a competitive advantage over a generic Midwest ethanol plant, but such competitive advantages seem slim and could rapidly vanish due to outside events. 

DISCLOSURE: Tom Konrad and/or his clients have positions in the following stocks mentioned here: ADM.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

May 19, 2007

The Week in Cleantech: May 14 to May 18 - Is Energy Efficiency Heating Up?

The Week in Cleantech is a weekly roundup of our favorite cleantech and alt energy blog posts and stories from across the web. If you know of a good piece that you think should be included here, don't hesitate to let us know!

This week, we particularly liked...

On Tuesday, Rob Day at Cleantech Investing debunked the "cleantech bubble" myth for us. An interesting and fresh look at the issue of whether or not cleantech is getting too hot for its own good.

On Wednesday, Adena DeMonte at Red Herring discussed an interesting energy storage funding deal. Large-scale energy storage aimed at smoothing out supply-demand imbalances in electricity grids is receiving a fair bit of attention from utilities, and it is therefore area that I am keeping a very close eye on.

On Wednesday, Tyler Hamilton at Clean Break told us about the upcoming RuggedCom IPO. Energy efficiency and smart-grid solutions are two areas we continue to believe will present great investment opportunities in the near and medium term.

On Wednesday, Kevin Bullis at Technology Review informed us that it may soon be possible to make cheaper, cleaner ethanol from biotech corn. Cellulosic ethanol meets conventional corn-based ethanol.

On Wednesday, Dallas Kachan at Inside Greentech rode the marine power wave with Roger Bedard for us. Wave power has been in the news a fair of late, as the first commercial projects in the US are about to get underway. Yet one more area I would recommend keeping on eye on...

On Friday, Ilkka Luukkonen At Red Herring informed us that EnerNOC was having a stellar debut on the NASDAQ. We've written about EnerNOC in the past, and I probably don't need to remind you that energy efficiency looks fundamentally very solid to us.

May 16, 2007

Cashing In On Global Warming

Just as I was attending a debate this morning that touched, partly, on the desirability of implementing an emissions trading system to control greenhouse gas emissions, I received an email from Market Watch informing me that they were running a special report on climate change and cleantech investing.

The report features a very interesting collection of articles indeed. If you have about 1/2 hour to spare, I would recommend going through all of them. The following topics are covered:

a) Global warning and the insurance industry

b) Al Gore and David Blood's investment venture

c) The weather derivatives market (as we have pointed out before, this is an area that is sure to see some healthy growth in the years ahead)

d) Carbon finance and emissions trading (the article opines that carbon trading could represent one of the biggest earners for energy desks within a few years)

e) Whether or not the current popularity of alt energy stocks is just a fad.

f) A look at cleantech funds and ETFs from a personal finance perspective.

Nothing particularly groundbreaking for anyone who follows this space closely, but it's always interesting, in my view, to keep up with cleantech investing reports in the popular press.

One thing I've noticed - such reports are becoming increasingly sophisticated, and I think the public at large is getting a much better understanding of the opportunities and pitfalls associated with cleantech investing. What's the implication of this? It should become a lot more difficult, in the years ahead, to find cheaply-priced cleantech gems.

May 14, 2007

3 Alternative Energy Stocks You Need to Know

In the face of a declining overall energy market today, three of our favorite alternative energy stocks posted strong gains on high volume.

The Oil Services HOLDRs ETF (OIH) was down 2% and the PowerShares WilderHill Clean Energy ETF (PBW) was down 1.7%. Indeed, the vast majority of the energy stocks that we track were in the red. But bucking the trend were two energy stocks that we have profiled in the recent past and a third company that we will begin covering today.

First on the list is our favorite wind energy play, Welwind Energy International (WWEI). We recommended Welwind during October of 2006, when it was trading around $0.07. It closed today at $0.18, up 26% on 4X average trading volume. That is more than a 900% gain in the six months since we first initiated coverage on Welwind.

Next on the list of breakout stocks today is Nova Biosource Fuels (NVBF). Nova just announced a move from over-the counter to the AMEX, which will be effective on Monday, May 14. Nova recently held its official groundbreaking ceremony at the site of its planned biodiesel refinery in Seneca, Illinois. The plant is expected to have a 60-million-gallon per year biodiesel production capacity from locally generated, low-cost feedstocks, including rendered animal fats and oils and recycled vegetable and animal- based greases. Nova’s stock price increased by 4.5% today on 12X normal trading volume.

Our final stock is getting its first mention on Gold Stock Bull today. Despite being the darling of the ethanol investment community and attracting funding from none other than Bill Gates, we have been hesitant to recommend Pacific Ethanol (PEIX). We watched the stock quadruple during 2006 from $10 to nearly $45, but couldn’t see any fundamental justification for the rise and held off. PEIX has since retreated to around $15 in an overall downturn amongst ethanol producers.

So what is driving our optimism with Pacific Ethanol? A shift from hype to substance. The Sacramento, Calif.-based company swung to a first-quarter profit, earning $1.9 million, or 5 cents per share. During the same quarter last year, Pacific Ethanol lost $612,000, or 2 cents per share. This first-quarter profit was generated from revenue that more than doubled to $99.2 million from $38.2 million. Pacific Ethanol sold 37.5 million gallons of ethanol, almost twice as many as it did a year ago, and ethanol prices were up more than 20 percent.

Pacific Ethanol’s share price responded by climbing 9.1% on 6X normal trading volume. Despite fears by some investors of an oversupply in ethanol during the back half of 2007, we believe PEIX will continue pushing higher. We have a price target of $22 for 2007, which is a 47% increase from the current price. The chart below shows clear support at $15 and we believe a bounce off this price floor is imminent.

Pacific Ethanol currently has one plant operational, one plant about to open and three other plants under construction. The operational plant is located in Madera, California and has a capacity of 35 million gallons per year. It is the largest ethanol plant on the west coast.

Their second plant is being constructed in Boardman, Oregon and will also have a capacity of 35 million gallons per day. Construction is scheduled to be completed in the next few months.

Pacific Ethanol also has begun construction on three 50 MGY name plate capacity production plants that will open mid 2008. Magic Valley, Idaho will serve growing markets in the Intermountain West, while Pacific Ethanol’s Stockton, California and Imperial Valley, California plants will help meet the growing demand for ethanol in California.

The energy bill passed by Congress in 2005 requires an increase in ethanol use by refiners to 7.5 billion gallons by the year 2012. With Democrats now controlling both houses and looking likely to take over the presidency, we can only expect additional government incentive for alternative energies such as ethanol.

A significant portion of Ethanol demand is coming from the fact that states across the country have banned MTBE (Methyl Tertiary Butyl Ether), a fuel additive formerly required to increase octane levels of gasoline. MTBE has found its way into drinking water and many believe is cancer-causing. Ethanol is the only other commercially viable additive that will bring gasoline into compliance with state and federal clean air regulations. Consumption and production of ethanol has continued rising at a record pace and should be considered as part of any investment portfolio.

Good luck and happy investing!

Jason Hamlin is Founder of Gold Stock Bull, a site that has been tracking the secular bull market in gold and silver since its inception, back in early 2002, as well as the emerging bull market in energy since it took off in early 2004.

May 13, 2007

How to Beat the Market: Less Money and More Judgement

Last week, I looked at how a small investor could gain an advantage in the market by understanding the other players.  The most important other players are institutional investors such as hedge funds, pension funds, mutual funds, and investment banks who have considerably more resources and valuation skills than the individual investor, and so trying to take them on directly to beat them at their own is likely to be an expensive exercise in futility.

Two Exploitable Weaknesses

On the other hand, I argued that institutional investors have certain handicaps and biases which do allow small investors to enter the market on our own terms, and not compete directly with the institutions.  These include:

  1. Too much money.
  2. A focus on quantitative as opposed to qualitative analysis, which leads to a focus on the past.

I listed several other weaknesses last week, but these are the two I focus on when doing my own investing.  While the overall returns of some money managers are hurt by the agency problem (looking out for their jobs rather than their client's returns) and the like, I have not come up with methods of taking advantage of these weaknesses.  In fact, I think that there are a bunch of other traders and hedge fund managers out there doing just that, and the last thing I want to do is go up against hedge funds.

I'll deal with just these two, and point to some tactics a small investor can adopt in the pursuit of an edge in beating the market.  The underlying theme is always the same: in order to beat the market, we have to identify mispricings: instances in which the value most market participants place on a security differ from its true value. Small investors, with far fewer resources than institutional investors, should focus on securities that institutional investors are ignoring, or analyze securities in ways institutional investors do not.  If you can think of other ways to exploit weaknesses of institutional money managers, all the better: you won't be in competition with me, either.

Too Much Money

To a small investor whose biggest financial decision in life so far has probably been the purchase of a house, the idea of having too much money may seem laughable.  Nevertheless, too much money is a very serious handicap for institutional money mangers, and the only handicap they all share.  If you have $50 million dollars to invest (the size of a small mutual or hedge fund), and you're looking for a stock that will add 0.1% to your returns if its price doubles, you are going to have to invest $50,000 in that stock.  That won't be a problem if you want to buy Archers Daniels Midland (NYSE: ADM) for exposure to ethanol and biodiesel, because your trade will barely be a drop in the daily volume of stock traded.  On the other hand, if you want to buy $50,000 of Earth Biofuels [OTCBB: EBOF],  which has a market capitalization of less than $100,000, you could easily wind up doubling the price of the stock in the process, greatly reducing or even eliminating any potential gains.

In other words, in order to make any profit on a stock, that stock must have some degree of market capitalization, and trade enough volume to make a substantial investment at a reasonable price.  In other words, institutional investors are compelled by their size to invest only in companies that are (at least to some degree) reasonably large and liquid.  There are no particular cut-offs on what makes a stock large or liquid enough for institutions, since institutions come in all sizes.  

Because large investors can buy them, shares in highly liquid securities often trade at a higher price than they would otherwise (called a liquidity premium), and hence illiquid securities have, on average,  higher long term returns.  More importantly for our discussion, there are few or no analysts trying to asses the value of illiquid securities, and so a diligent individual investor is more likely to be able to identify an under priced security. If you want to find a rare coin, you have a much better chance if you look through a jar of pennies found in the attic than if you look in your loose change jar.

With a liquidity premium comes liquidity risk: the risk that, should you want to sell an illiquid security, you will not be able to sell at a reasonable price, or, on occasion, at any price.  I have a personal rule not to put more than 1% of a portfolio into an illiquid stock, especially ones that trade off the regulated exchanges, and even then, I'll also limit the fraction of the portfolio devoted to these sorts of stocks.  Nevertheless, given the low professional interest in illiquid stocks, most of them are mispriced: the trick lies in finding the ones which are substantially undervalued rather than overvalued.  It's not uncommon to see a stock go up many times in a single year.  On the other hand, it's not uncommon to see them plummet to nothing in the same period.

Given the prevalence of over the counter stocks that are little more than an excuse to part investors with their money, I only look at companies that I read about in the non-financial press.  I think of it this way: if a company's purpose is to sound good to investors, they will target investors with their public relations.  On the other hand, if they are out in the world solving real problems or providing necessary services for paying customers, then I'm much more interested.  A company that's talking about its great business plan to solve a problem I had not thought of on my own is much less appealing.  Worse yet are companies setting out to solve a problem that everybody is talking about, which I take as a sign that a company is trying to hop onto a bubble bandwagon. Companies which are actually out making news (as opposed to generating PR news releases) are much more likely in my mind to have something customers want, and these are the companies which deserve further research.

If you're considering investing in small, illiquid companies, no matter what sort of analysis you intend to do, I suggest you limit yourself to investing in no more than one third to a half of the companies you analyze.  This will discipline you into making hard choices, and prevent you from putting money into a company simply because you feel that all the hard work you did researching it deserves to be rewarded.  The market does not reward hard work: it rewards good judgment (a much rarer commodity).

Quantitative Analysis, and a Historic Bias

Much of my article last week was devoted to making the case that institutional money managers focus too much on quantitative analysis rather than qualitative analysis, and I won't repeat that argument here.  When considering the same companies that large investors analyze, we should not spend much time doing traditional valuation: it's already been done by many other people who spend days analyzing one company, and poring though the footnotes.  

When looking at big companies, the small investor's potential advantage is lateral thinking, leaps of intuition that become less and less likely the more analysts delve down into the footnotes of a financial statement.  

The stock market, and history as a whole, is prone to breaks and sudden reversals.  When everything is going well, it becomes harder to see dangers lurking in the corner.  When the roof seems to be caving in, it becomes hard to see the light at the end of the tunnel. Aggravating this is the fact that financial statements are historical documents.  Typically, when an analyst wants to project the future of the firm, he will start with this historical data, and see how all the factors he can identify have interacted in the past, try to guess what these factors will be in the future (often by extrapolating existing trends), and see what comes out.

But what if the key to the future is not contained in the past?  The millennium bug was a disaster that everyone saw coming, and because of that, they took the necessary steps to deal with it, and when 2000 rolled around, the whole thing was a fizzle.  On the other hand, Long Term Capital Management failed because their sophisticated mathematical models of the complex relations between a wide variety of different financial assets failed when those relationships broke down during the Russian default in 1998.

Such Black Swan events are, by their nature hard to predict.  But, to beat the market, we don't have to predict the unpredictable, but only to make a prediction that most other people have not yet made.  Some events defy prediction by their very nature, but more defy prediction because of our psychological biases.  Put simply, few people predict things that should be obvious because they don't want to see them coming.  For instance, you probably know someone who was in a doomed relationship, but absolutely refused to acknowledge the relationship was ending until long after it was over.  That happens all the time in the stock market.  People did not believe that the stock market was overvalued in 2000 (despite repeated warnings) because they were too attached to making 15-20% a year on their investments.  They were flipping condos up until a year ago despite the fact that both the ratios of home prices to rents and home prices to median income were at historic highs.  These were predictable changes in the market, which people did not see because they didn't want to see them.

I spend a lot of time trying to think about the unthinkable.  What could happen that would totally change the rules of the game?  What is the disaster that no analyst is building into their projections because it's too difficult to contemplate or quantify?  What are the chances that these things might happen anyway?

To beat the market, we need to "think outside the box."  It's a cliché, but it's still a lot easier to talk about than do.  And there's no instruction manual.


Neither of these tactics is simple or easy to implement.  If beating the market were an easy task, everyone would do it.  Before you even try, you should first ask yourself if there is some reason you may be better than anyone else, because if you're not better than most people who try, your results won't be any better either, and you'll end up losing money.   Last year, I put together a quiz, with a very serious purpose: to help people self-assess if they might actually have an investing edge (or at least if they don't have many of the traits that cause people to fail.)  It's not very scientific, but I like to think that it will help someone who shouldn't be trying to beat the market to decide to index their portfolio, or at least persuade someone who is bound to try any way to dip their toe in rather than diving in head first.

I believe it's possible for a small investor to beat the market over the long run, but I don't think that most, or even many, small investors have much of a chance.  It's human nature to believe that we're the exception to the rule, and in some ways it's rather ridiculous for me to be telling you to take a hard look at yourself before you try: I wouldn't have taken that advice.  

What we need to decide for ourselves is how much of our confidence is actually overconfidence.  Most of us who try to beat the market will fail, but I like to think that I've helped a few small investors along the way to success.

DISCLOSURE: Tom Konrad and/or his clients have positions in the following stocks mentioned here: ADM.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

May 12, 2007

The Week in Cleantech: May 7 to May 11 - Citi To Throw Big Money At Climate Change

The Week in Cleantech is a weekly roundup of our favorite cleantech and alt energy blog posts and stories from across the web. If you know of a good piece that you think should be included here, don't hesitate to let us know!

This week, we particularly liked...

On Tuesday, Mike Millikin at Green Car Congress detailed Citi's recently-unveiled climate change initiative for us. Yet more institutional money formally chasing climate and cleantech investments.

On Wednesday, Mark Gunther gave us the run-down of Merrill Lynch’s green metrics. The issue of how blue-chip firms are positioning themselves for a carbon-constrained world is beginning to creep into the mainstream, and you can expect more such initiatives in the years ahead.

On Wednesday, Dallas Kachan at Inside Greentech took us inside the Silicon Valley cleantech investor brain.

On Thursday, Richard Kang at Seeking Alpha told us that the hurricane futures market required investor attention. This is indeed a very interesting (a growing) area of environmental finance. The theory here is that as the weather becomes wackier because of climate change, various commercial entities will seek to hedge their weather risks by by-passing conventional insurance solutions and going straight for the risk-taking appetite of financial markets. A growing pool of capital, including hedge funds, is now willing to step in and take the opposite side of these weather "bets".

On Thursday, Biopact informed us that biofuels were becoming a headache for OPEC. Good! Let us hope that not only biofuels, but also tougher fuel efficiency standards and plug-in hybrids turn this headache into a splitting migraine. Unfortunately, something tells me that OPEC will fight tooth-and-nail to ensure that fossil fuels retain their place in our economy. It would also be naive to assume that the US really wants big holders of its debt to go broke. After all, we don't want all those safely-stored Greenbacks offloaded on global currency markets, do we?

On Friday, Martin LaMonica at CNET News informed us that clean tech VCs were putting money on solar, not IPOs. Investor surveys are always a great starting point for a winning contrarian bet - when everyone's rushing somewhere, it makes it hard to find good value, so it's a good idea to seek that value elsewhere.

May 11, 2007

NYMEX To Get Involved In Emissions Trading

A senior NYMEX official told reporters Wednesday that the exchange was considering getting into the business of carbon emissions trading.

Given the actual, but especially the potential, size of this market, it makes sense that established bourses would take a good hard look at it.

This will probably not be seen as very good news by the folks at Climate Exchange plc [OTC:CXCHF.PK]. Of course, until NYMEX actually unveils anything substantial, this will remain nothing but chatter.

May 08, 2007

Some Emissions Trading News

A lot has happened in the world of carbon finance and emissions trading since we last wrote about this topic, so I felt this might be good time to provide a quick update.

(A) The World Bank Carbon Finance Unit recently released its State and Trends of
the Carbon Market 2007
(PDF document), a periodic assessment of the scale and characteristics of the global market for carbon dioxide emissions.

The Bank found a large increase in the volumes traded (131%) and dollar value (177%) of the global carbon market in 2006 over 2005. Unsurprisingly, the EU ETS continued to account for the bulk of the market's value and volumes.

For a quick summary of the report, see this recent article by Environmental Finance. One of the brokers interviewed in the article argues that the Bank's estimates have a downward bias of up to 25% because of the opacity surrounding certain trades.

Needless to say, these are impressive numbers, especially given how low carbon prices have been in the EU ETS over the past year. I don't want to get into a long discussion here, but suffices to say that those are encouraging numbers. Keep in mind, however, that the bulk (typically upwards of 70%) of volumes are traded in OTC markets rather than on exchanges.

(B) On April 17, the magazine Carbon Finance reported that S&P was to begin rating carbon funds.

As carbon emissions trading grows, you can expect such funds to grow in number and value, and this should be seen as a leading indicator of that future growth.

(C) On April 23, UBS announced that it was launching the world's first global warming index.

The FT article to which I link above notes:

"Retail and institutional investors will also be able to buy exposure to, or short sell, the index in much the same way they would with the FTSE or Dow Jones stock indices. If temperatures rise, so will the value of the index."

Our regular readers may also remember that we reported on UBS' launch of a carbon emissions index a few months ago.

(D) Finally, Climate Exchange plc, a company we've discussed on several occasions in the past, released its 2006 financial results on April 19 (thanks to Mike Temple for the heads up).

Operating revenue growth was impressive, standing at GBP 4.1 million for the year, up from GBP 0.8 million in 2005. Nevertheless, the company is still not profitable and the share price (for the ADR) [OTC:CXCHF.PK] is up over 100% in just 3 months. There's currently a lot of future growth (and speculation) priced into this stock and my sense is that it with the next market correction, it will pull back in a pretty significant way.

While I am kicking myself for not snapping this one up at when it was trading at around $12 in early February, I am confident that it will eventually pull back enough to become attractive again. For the time being, however, I find it a tad pricey and I wouldn't be surprised if when this stock breaks the holding pattern its been in for a few weeks it is with a break to the downside.

May 06, 2007

Beating the Market, Part I

Because I'm currently studying for the second (of three) CFA® exam, I'm going to take a break from my usual article analyzing some aspect of alternative energy.  This week and next, I'll take a step back and try to answer an existential question: How can I possibly hope to beat the market, when "the market" consists of professional money managers with resources far exceeding my own?  Every active investor should ask themselves this question: the answer will either make you a better investor, or save you a lot of time and money if you are humble enough to realize that you're like the majority of mutual fund managers who would be better off not trying, and should be indexing their portfolios instead.

Beating the Market

Is it possible to beat the market?  The unequivocal answer is "Yes:" no matter how many economists say "the market is efficient" it's only the existence of smart money managers out there who find mispricings and exploit them that keep the market as nearly efficient as it is.  Market efficiency requires that there be money managers who can detect mispricings and take advantage of them.  The abnormal returns (or Alpha) they make by so doing are their wages for making the market more efficient for everyone else.  

Because of the thousands of highly trained analysts out there, constantly looking for and exploiting mispricings ("capturing Alpha") in the stock market, I know that if I buy an index fund and keep my costs low, I'll probably outperform a majority of actively managed mutual funds, after fees.  

Unfortunately, the fact that some managers do consistently outperform over the long term is of little comfort to the small investor who is hoping to beat the market himself.  After all, institutional money managers (mutual funds, investment banks, hedge funds, etc.) possess resources that the individual investor can only dream of: teams of analysts to read through the footnotes of GE's 10-K's and annual reports line-by-line, who understand the difference between a capitalized lease and the Capital Asset Pricing Model (CAPM).  Quant hedge funds have supercomputers which can do technical analysis of 5,000 stocks in the blink of an eye, and recognize a head-and-shoulders top formation faster than you can say "dead-cat bounce."

Can a small investor or money manager who can't pay a team of analysts or computer programmers to do market analysis have a chance of finding some mispricings?  It's generally accepted that, at any given time, there is only a finite amount of profit to be made by identifying and exploiting mispricings in the market.  Put another way, there is only a finite amount of Alpha to go around in any one market.  On the other hand, there must be some Alpha available in any financial market: according to the Arbitrage Pricing Theory (a much more general and realistic version of CAPM), it is the successful active managers who make markets efficient, and they make profits by doing it.  

It's my belief that small investors and money managers can beat the market, and institutional managers.  We can do this by understanding the competition, and exploiting their weaknesses, or just avoiding the competition altogether.  Active portfolio management is a game that can be played as many ways as there are active portfolio managers, but large portfolio managers are shaped by who they are and the nature of the money they manage.  

Number Crunchers and Alchemists

We are primarily concerned with big, actively managed pools of money.  They could be actively managed mutual funds, pension funds, endowments, or hedge funds.  By definition, index investors do not trying to capture Alpha, and so they do not reduce the amount available for other investors.

How do active managers go about finding mispricings to exploit?.   They are either highly trained analysts, such as CFA® Charterholders, or brilliant individuals or teams like Warren Buffett or George Soros who have the right combination of skills, insight, and emotional outlook to be one step ahead of the market most of the time.  Most CFA® Charterholders will try to beat the market by superior analysis: they patiently gather all the available information about a company, make adjustments to financial statements to make the information more meaningful, and use that information to project future earnings, cash flows, or dividends into the future to come up with a valuation of a company: that is what the curriculum teaches.  If the market price of the security is significantly under-(over-)priced, their fund will buy (or sell) the security in question.  Warren Buffett follows a similar procedure (I highly recommend Robert Hagstrom's book The Warren Buffett Way.)I consider this approach "number crunching": gather data, analyze carefully, and take action.  

Investors like George Soros, on the other hand, practices what he terms Alchemy of Finance (see link to his book of the same name).  He looks for the trends under the market that the numbers hide from us: the forest, rather than the trees.  More recently, this sort of financial alchemy is being explored by academics and market participants alike in the form of Behavioral Finance: the art of understanding how our emotions and ingrained biases lead us to make bad decisions in the market.  Investors and traders who, like Soros, can see those biases in themselves and others can capture entirely different forms of Alpha that simply are not visible to pure number crunchers.

I am only implicitly addressing the discipline of technical analysis (as opposed to fundamental analysis) but I feel that it also breaks down into number crunching and alchemy.  Number crunching technical analysis uses computers to analyze stock charts to detect and exploit formations as the evolve with sophisticated statistical analysis.  This approach has actually been statistically validated by Lo and MacKinlay in their cleverly-titled A Non-Random Walk Down Wall Street (I don't recommend this one unless you like reading statistics for fun; it's quite a tome... If you want to read more, start with this article on TraderFeed.)  The alchemists of technical analysis are people like Richard Russell, who look at a chart and have an instinct for how it will evolve.  I think this is the way most successful day traders operate; I expect that number-crunching technical analysis is dominated by hedge funds, who can afford the computing power and programmers it requires.

My classification of active managers into number crunchers and alchemists is not strict.  Successful investors most likely do some of both, and one skill set is invaluable in informing the other (which is why I'm studying for the CFA® exam.)  As the curriculum frequently emphasizes, good analysis requires judgment, and knowledge of the weaknesses of the method you are applying.  However, I believe that the number crunchers vastly outnumber the alchemists, and that the judgment that the CFA® curriculum attempts to instill is likely the hardest part of the curriculum to learn.  Judgment is also extremely hard to test, and while the CFA® exams are very comprehensive and require considerable study, most of what they test (in my experience so far) is numerical methods, not judgment.  Additionally, the Chartered Financial Analyst® designation is an elite designation (how many people have time for 200+ hours of study each year for a minimum of three years?), and I'm constantly impressed by the emphasis placed on individual judgment and the weaknesses inherent in the models taught.  The majority of people who describe themselves as "stock analysts" or "portfolio managers" do not have the CFA® designation, and probably have not had so much emphasis placed on the inherent weaknesses of analytical models. (I did a quick, unscientific check on the prevalence of the designation by searching LinkedIn: only about 10% of the people who have the words "stock analyst," "investment analyst," or "portfolio manager" in their profiles also mention the CFA® designation, and a good number of those, like myself, are CFA® candidates.)

I think the availability of enormous computing power compounds the number-crunching trend: when you have a hammer, every problem looks like a nail.  Add the fact that the skills of a number cruncher are much easier to evaluate and put on a resume, and large institutions with money to manage are more likely to hire people with these skills.  

If we wind up with far more money being managed by market number crunchers than by alchemists, it follows that there will be a lot more unexploited alchemy-exploitable Alpha than number-crunching exploitable Alpha. The small investor, with limited time and resources to hunt for Alpha, should hunt where there are fewer hunters, and exploit the weaknesses inherent in large pools of money managed by number crunchers.

Weaknesses of Large (number crunching) Money Managers

What are the weaknesses small investors should try to exploit?  Here are some I see:

  • Too Much Money: Because they have so much money, the can only trade very liquid securities.
  • Agency problem: A manager's strongest incentive is often to keep his job, not to make as much money as possible.
  • Analysis paralysis: Too much modeling, not enough judgment.
  • Historic bias: all data is historic data, but we are trying to predict the future.
  • Benchmarking: the goal is often to beat a benchmark, not make money.
  • Inflexible mandates: many managers don't have much choice about the type of securities they invest in.

Next week, I'll go into some detail about how I try to take advantage of them.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

The Week in Cleantech: Apr. 30 to May 4 - Are We In A Cleantech Bubble?

The Week in Cleantech is a weekly roundup of our favorite cleantech and alt energy blog posts and stories from across the web. If you know of a good piece that you think should be included here, don't hesitate to let us know!

This week, we particularly liked...

On Monday, I received an email from the good folks at Lux Research informing me that they had just released a study looking into the 2006 cleantech VC investment numbers (PDF document). Before I had a chance to go over the press release, The New York Times had done a feature on the report. Alt energy bubble or no alt energy bubble, that is the question...

On Monday, C. Scott Miller at BIOconversion Blog told us about the balkanization of the US renewable energy portfolio. In many ways, this is paramount to the success of alt energy. Different regions have different alt energy profiles depending on the availability of certain resources. As an investor, it thus makes sense to look for that fit in appraising the viability of a project.

On Tuesday, Richard Widows at TheStreet.com showed us how alternative energy was powering certain high-performing funds. AltEnergyStocks.com often gets email queries regarding alt energy and cleantech mutual funds and ETFs - if you are one of the people wondering about those asset classes, you will find this piece interesting. The article also provides a short list of which alt energy stocks are most widely held by pooled capital.

On Wednesday, the WSJ's Energy Roundup informed us that a majority of Americans would agree to pay higher gas taxes if the money raised went to alt energy R&D. Paradoxically, however, most Americans aren't willing to change their car purchasing or driving habits...go figure.

On Wednesday, David Shukman at BBC News showed us a power station that harnesses Sun's rays. Impressive!!

On Thursday, Environmental Finance informed us that global carbon markets tripled in value in 2006. More on this a little later this week.

On Friday, Biopact told us how biofuels would have a limited effect on food prices. You gotta love a contrarian opinion!

On Friday, Rob Day at Cleantech Investing asked five questions. This is the sort of the short-and-sweet feature that can provide validation for your current model or a useful starting point for cleantech investing.

May 03, 2007

Cleantech Venture Capital - Still Rising

As part of our ongoing series on stories on investment in the cleantech sector, we had a chance to discuss the sector with one of the venture capitalists at Emerald Technology Ventures.

Scott MacDonald is an Investment Director with Emerald Technology Ventures, a global leader in cleantech venture capital. Founded in 2000 under the name SAM Private Equity, Emerald is a pioneer in this rapidly emerging sector and is focused on innovative technologies in energy, materials and water. With offices in Zurich, Switzerland and Montreal, Canada, Emerald manages three venture capital funds and two venture capital portfolio mandates totaling over US$380 million. Scott currently serves as Chairman of RuggedCom and as a Director of Solicore and SoftSwitching Technologies. Prior to joining SAM, Scott held the position of Managing Director at OPG Ventures Inc., the venture capital subsidiary of Ontario Power Generation. Previous to OPG Ventures, Scott worked for ACF Equity, an early-stage venture capital company focused on investing in information technology companies. Scott graduated with a Bachelors degree from McMaster University and an MBA from Dalhousie University. He is a member of the North American Advisory Committee of the CleanTech Venture Network.

I know a bit about the history of SAM and Emerald Technology Ventures, and as one of the oldest cross-border investment groups in the cleantech area, I am very curious to get the Emerald Technology take on a number of issues. So we put to Scott a few thoughts and questions to get their take:

Emerald sponsored the San Francisco GreenVest 2007 conference I am chairing in June, and you are speaking there – can you share a few of your insights on the future of the cleantech area as an investment asset class?

I think we are in the early days but there is certainly an element of notoriety that the sector has attracted over the past 12 months with scientists, politicians and venerable VCs claiming action is required now to save the planet from global warming. A reputable and experienced LP in the venture asset class told me just last week that every generalist fund they speak with mentions an initiative in cleantech. I think the great generalist funds will invest in the sector (as you know a few already are) and they will likely be successful. The specialist funds like Emerald will continue to map out and invest in innovating technologies because of our technical expertise and experience. Based on a number of successes exits to date in our first funds (Evergreen, Schmack Biogas, Pemeas), the specialization strategy seems to be working well. A really exciting development is that we are starting to see repeat entrepreneurs. Cleantech entrepreneurs that have successfully exited and are looking to try it again – and we couldn’t be happier. This was a key factor in the growth of the IT sector in the late 80s and 90s.

And can you fill me in a bit on the ins and outs of the recent fund history – the mandates with CDP and Ontario Power, your fund raise last year, and the subsequent MBO to form Emerald?

In 2000, SAM Group (Sustainable Asset Management), a leading asset management company specializing in sustainability investments and headquartered in Zurich, launched SAM Private Equity as its venture capital arm. That same year SAM Private Equity closed the SAM Sustainability Private Equity Fund and the SAM Private Equity Energy Fund with a combined EUR 90 million in commitments from leading institutions and strategic corporations. Both of these first funds are fully invested. In 2004, SAM Private Equity was awarded the portfolio management mandate from la Caisse de Dépot et Placement du Québec (CDP), a large Canadian-based pension fund, to manage its direct energy technology venture capital portfolio. Following the awarding of this mandate, SAM Private Equity increased its North American presence with two former members of the CDP team and established a North American office in Montreal, Quebec. In 2005, SAM Private Equity was awarded its second portfolio management mandate from Ontario Power Generation, a large Canadian electric utility, to manage its direct energy technology venture capital portfolio. To further strengthen its North American investment focus, two members of the former venture capital arm of Ontario Power also joined the team.

In March we announced the final close of our latest cleantech focused venture fund with commitments of EUR 135 million (US$180 million). We are going through a name change but the fund will be renamed Emerald Technology Ventures Fund II. Strong investor demand helped us exceed our original target for the new fund of EUR 100 million. Investors in the new fund are leading investment companies, financial institutions and multinational corporations from around the globe including: GIMV - Belgium, Rabobank - Netherlands, Caisse de dépôt et placement du Québec - Canada, Axpo Holding - Switzerland, Springbridge Limited (Advised by Consensus Business Group – UK), Credit Suisse - Switzerland, Deere & Company - USA, DSM Venturing - Netherlands, The Dow Chemical Company - USA, KPC Energy Ventures, Inc. - Kuwait, Piper Jaffray Private Capital - USA, Suncor Energy Inc. - Canada, Unilever Corporate Ventures and Volvo Technology Transfer AB - Sweden.

I have to ask, the name change – Sustainable Asset Management was an old brand in the cleantech investment sector, why the name change to Emerald?

Following the buy-out we are a private independent VC manager now and as such can no longer use the SAM brand. The SAM brand is powerful but it also was the source of some market confusion for our venture capital division. It’s clear now that Emerald is an agile and independent global VC manger with in-house expertise in the cleantech sector focused on investing exclusively in the cleantech sector and we have a new fund to do deals.

How many deals have you done from the new fund, how much capital have you employed, and what are you expecting to do over the next 12- 24 months?

We have made three investments out of the new fund and are closing on two more which should be announced within the month. We have only announced two of the investments to date – Vaperma and Identec (details of each is on our web site) www.emerald-ventures.com I would expect we will invest in about 6 portfolio companies in total this year. We like to invest between US$2 -5 million in the first round depending on the opportunity and the stage. Technology, market and management are what’s important to us – we will consider all stages. Well…if it’s just a conceptual idea on a bar napkin we need to know the entrepreneur has made himself and others very wealthy in the past (preferably us – back to the serial entrepreneur comment).

What’s your passion these days? What technologies are you focused on?

I think there is an incredible opportunity for new technologies to help upgrade the antiquated electricity grids in Europe and North America and to leap frog into the incredible build-out that is going on in countries like India and China. China last year built an average of five 300 megawatt electricity plants a week and energy consumption is expected to continue rising fast as China aims to quadruple the size of its economy by 2020. This means a lot of new grid infrastructure technology will be deployed. We have a number of portfolio companies in the “smart Grid? space and will continue to seek out investments in this space.

You’ve had a couple of recent exits in fuel cells – what fund were they from, and has that changed your appetite for similar technology areas in the future?

We have had recent exits in this area: Pemeas which we sold to BASF and Cellex which we sold to Plug. We still have an number of other FC investments in our portfolio that we are bullish on – Angstrom Power and PolyFuel. I would say we have learned a lot about the general FC market and understand many of the technology challenges and market adoption risks much better. We are still interested in the FC space – I would just say we are a more sophisticated FC investor now.

What does Emerald see as the main differences between investing in cleantech in Europe versus the US?

The topic of an article in itself but quickly: Deal structure, Corporate governance model, Company history (many family business in Europe), labour laws, language, proximity and access to stock exchanges which are more accommodating to VC backed companies (Frankfurt Prime Standard, AIM), valuations (typically more favourable than the US – comparable to Canada where we are also very active). The short answer is lots but both regions provide great opportunity to generate investor returns. Again or investment thesis is based on the fact that unlike IT, cleantech is a global business and as such, investment opportunities are not limited to Silicon Valley or any other specific geography. At Emerald Technology Ventures we have taken a distinctive approach to addressing the challenges associated with technology specialization and geographic diversity. Our approach includes having technically competent people in-house and locating our Partners and Technology Specialists in two of the most important Cleantech markets in the world: North America and Europe.

We have done a lot of writing at Cleantech Blog on topics including ethanol, solar – so I’d like to get your 1 sentence rapid fire take on a couple of always topical cleantech investment debates:

Thin film vs. Conventional PV
Thin film if you have deep pockets and patience

Solar concentrators vs. Flat Panel
No comment, yet.

Cellulosic vs. Corn Ethanol
Science project vs. commodity. I’m a VC…science project always wins.

Cleantech vs. Greentech
Make great products, build great businesses and provide great returns to investors (and hopefully help out our world along the way) and no one will care what you call it.

Thanks Scott. Especially with those last comments, you've provided some good food for thought. The venture capital sector is built around high risk, high reward, and you guys are certainly in the mix. We continue to keep our fingers crossed that cleantech sector can deliver on the rewards side. You can find more on Emerald at www.emerald-ventures.com. And don't forget to visit GreenVest on June 25 in San Francisco.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks.

May 02, 2007

Poll Question: When can we expect federal climate change legislation in the US?

This poll opened on May 2, 2007 and closed on May 4, 2007

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