Avoiding the hype

Successful cleantech investing means looking beyond ‘inspirational rhetoric’ and the ‘bubble mentality’ to later stage investment, argues Frog Capital’s Iyad Omari.

From renewable energy to materials recycling and green transport, cleantech’s allure is simple: it offers the potential for profitable, transformative growth while helping the fight against climate change, delivering energy efficiency and resource security, handling the by-products of consumption and creating jobs.

This golden halo makes the cleantech theme a hot ticket. There are now four times as many private equity funds focused purely on cleantech as there were in 2005 with an estimated $12 billion to invest. Since pure funds make just 30 percent of overall cleantech investments, the total sum poised to enter the sector is clearly vast.

This poses a challenging set of questions for an investor: which of cleantech’s many sectors do I support?  How do I identify the companies that will deliver good returns?  And where should I sit on the complex risk/reward spectrum?

Iyad Omari

Recent years have yielded few clues, with frozen financial markets making it hard for even mature cleantech businesses to complete IPOs and trade sales. But two major – albeit very different – cleantech exits in 2010 have shed fresh light on the cleantech cycle: Tesla Motors, an IPO in the US, and SiC Processing, a sale in Europe.


Electric car company Tesla was created in 2003 by chief executive Elon Musk, whose track record includes co-founding PayPal. Musk describes Tesla as a “freaking technology velociraptor” that’s poised to revolutionise the way Americans buy and drive cars.

Tesla’s revolutionary promise and captivating products certainly found favour in June 2010, when its IPO raised $226 million. The shares, which had an initial target of $14 to $16, briefly hit $30, pushing the company’s value towards $3 billion.

But this exuberance masks some difficult financial and technical facts. Tesla has a small client base and has never made a profit. Indeed, it readily accepts that it will lose money and eat cash until the 2012 launch of its “mass-market” Model S. And electric cars face many well-known challenges, such as batteries, range and infrastructure, that may take a decade or more to address.

All of this makes Tesla a vibrant but uncertain technology investment. While some early investors are reported to have realised profits, others may remain locked in for some time to come.


SiC Processing is a later-stage example of a cleantech business that has realised returns for its investors.

In June 2010, SiC was acquired from a group of growth capital investors, including Frog Capital, by Scandinavian private equity firm Nordic Capital. Börsen-Zeitung described the sale as “the largest private equity transaction of the year in Germany” and estimated SiC’s price tag at close to €500 million.

Established in 2000, SiC has become a large and profitable provider of high-end recycling services to manufacturers of the photovoltaic wafers used in solar cells. The process recycles materials and reduces the overall cost of solar energy.  In the fiercely competitive wafer market, SiC’s ability to cut clients’ costs led to rapid adoption, with facilities across Europe, Asia and North America.

In recent years, the market for solar cells has seen both phenomenal growth and a sharp slowdown, but SiC has continued to expand throughout. Sales have grown at a compounded annual rate of 54 percent over the last three years. EBITDA has grown at a compounded annual rate of 69 percent in the same period. It has secured long-term customer contracts and has increased penetration in China, home to many of the world’s leading solar cell manufacturers.

Iyad Omari is a partner at London-based Frog Capital. Subscribers to Private Equity International can access Omari's full article here.