Craton makes first clean-tech fund investment(3)

CalPERS-backed Craton Equity Partners is investing in clean-tech, but not energy, says managing partner Tom Soto: ‘Too many horses in that race.’

Craton Equity Partners, a Los Angeles-based private equity fund focused on investing in clean technology companies, announced today that it has made its first investment. The firm, formerly Paladin Private Equity, has invested $3.5 million (€2.6 million) of a $5 million commitment in the green building materials company GigaCrete.

GigaCrete, based in Scottsdale, Arizona, has created and patented several cementious building products designed replace stucco, plaster, concrete, and other materials. The products are designed to be more lightweight, stronger, and more environmentally friendly than their traditional counterparts. The company has all the characteristics Craton looks for in an investment, said managing partner Tom Soto. It is young, but has a balance sheet, customers, and proven management.

“It’s kind of our sweet spot,” Soto said. “We’re not looking for companies that are that mature. We’re interested in those companies that are doing less than $15 million [in revenue] a year.”

Green building materials are the most promising area of clean-tech, Soto said, both in terms of community value and bottom-line value.

“To me the unsung asset in this area is really going to be green building materials,” Soto said. “That’s where we can get the most bang for our buck environmentally.”

Soto said the firm plans to look for investments in other areas of clean-tech as well, including water remediation and treatment, and waste conversion technologies, both of which he predicts will become critical fields as the effects of climate change occur. One area the firm does not plan to invest in, he said, is energy.

“It’s not that we’re not interested in energy; it’s just that there are already a lot of horses in that race,” Soto said.

The fund was launched in two years ago, with a $200 million target. It made its first close in December 2006 on $82.5 million. Soto said the firm found considerable enthusiasm for the clean-tech industry among investors.

“It’s not as though [investors] are stampeding,” Soto said. “But folks are becoming more aware of the industry.”

He cites the convergence of many factors, including a shift in public opinion, concern over energy and energy independence, the acknowledgement of climate change, and a more favorable regulatory environment as explanations for the firm’s ability to attract investors.

The commitments of the state of California in particular signal a growing public interest in clean-tech. The California State Teachers’ Retirement System committed $36 million, and the California Public Employees Retirement System committed to 20 percent of the total fund. And the activities of the two heavyweight pension funds do not go unnoticed, Soto said.

“When CalPERS and CalSTRS sneeze, all the other systems catch a cold,” Soto said. “It was a substantial signal to the economic community and to Wall Street that this sector is here to stay. It can no longer be viewed as a nuisance to those people who want to ignore it.”
Soto has spent twenty years working on environmental issues, first as a consultant helping government and corporate clients improve both the profitability and environmental effects of their practices, then as a founder of the National Business Council for sustainable energy. He also helped to draft amendments to the National Clean Air Act and the California Clean Air Act in 1990. Bob MacDonald, Craton’s other managing partner, was president of Simon Private Equity, as well as the founder of Catalyst Energy, a renewable-based power producer. He also serves on the Clean Tech Advisory Council for the Mayor of San Francisco.