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Bridging the investment gap in Nordic cleantech

  • Publisert 04.06.2011
  • Forfatter Páll Tómas Finnsson
Environmental technologies are an important political priority in the Nordic countries, aiming to take the European lead in development of sustainable solutions. Developing and commercialising promising technologies requires considerable funding, often difficult to find for early stage companies.

Spotting the clean technologies

The issue was discussed at the final of Nordic Cleantech Open, matching early stage companies in need of development funding with international investors.

 

- Events like Nordic Cleantech Open correspond well to our overall aim of stimulating innovation and venture investment in cleantech start-ups, says Hans Christian Bjørne, innovation advisor at Nordic Innovation.

 

According to Lassi Noponen from Cleantech Invest in Finland, attractive investment portfolios of Nordic cleantech can be put together, in view of the large number of good technologies coming out of the region. The first challenge is to locate the real cleantech solutions, capable of fundamentally changing consumer behaviour.

 

- The essence of cleantech is finding ways of using less raw materials and resources to produce more. That has to be separated from the extravaganza of branding everything as cleantech, Noponen says.

 

The cleantech investment dilemma

The predicament of cleantech investment from a venture capital perspective is that the road to market often is long.

 

- Quite often the technologies need further development and the market infrastructure has to mature before the companies can roll out their solutions. This creates extra uncertainty for the investors. Many venture capital investors are unwilling to take technology risk and consider these companies too early stage for private capital, says Bjørne.

 

The fundamental issue is how to cater for early stage cleantech companies’ need for development funding and stimulate investment companies’ appetite for proven technologies.

 

- There is a mismatch between the capital seeking easy, low-risk, proven technologies and fast return on investment and the fact that we need to bring the companies to this stage first, says Sven Hansen, Venture Partner at Zouk Ventures in London.

 

Timeframe and return on investment

According to Åsgeir Nord from Norwegian Incitia Ventures, the dilemma stems from the fundamental mechanisms of venture investment.

 

- The reason that we lack capital in early stage companies is completely rational. Investors invest where they think they will get the highest return on their investments, he explains.

 

Nord is supported by Hans Engblom from SEB Venture Capital, who also points to the investment timeframe.

 

- From a traditional venture perspective, you want to bet on something that can reach the market relatively quickly. For us to go into early stage investment, we need to see that we are dealing with a rapidly expanding market, a management with a good reputation and a product with obvious customer value proposition. These are the three most important criteria, says Engblom.

 

Identifying prosperous investment options in cleantech demands a thorough insight into the technological aspects.

 

- When investing in early stage, you need to have a high technical capability to understand what the technology actually does and an educated view on how the market will develop. The banks do not always possess this knowledge, which sometimes makes it difficult to raise debt for cleantech projects, Noponen says.

 

Public capital for development and commercialisation

According to the investors, private capital therefore has to be preceded or matched by public capital with lower return expectations.

 

- You need fund support, like seen in Norway, where the state provides risk relief. This is necessary in more capital-intensive cleantech investments, where time to market is longer, says Nord.

 

One of the examples of how this can be accomplished comes from Finland, where Cleantech Invest has been selected by the government as a cleantech accelerator.

 

- The government matches our investments with a significant leverage. If we invest 300,000 Euros, the government gives the company invested in a million Euro grant, says Lassi Noponen from Cleantech Invest.

 

Future Nordic support mechanisms

The discussions at Nordic Cleantech Open confirm the need for continued public support in the early stages of venture capital investments in the cleantech sector. This remains important to the point where the investment options become self-sustainable and able to attract private capital.

 

- In order to develop a coherent and well-functioning Nordic venture capital market, supporting growth and internationalization of Nordic companies, we must continue to build bridges between public and private funding and cross-border cooperation, Bjørne says.

 

- We also have to ensure more obtainable funding in the critical growth phase. Nordic Innovation continuously works to improve the venture capital eco-system on a Nordic level. As an example of our efforts, we are currently investigating the opportunities for a pan-regional Nordic innovation fund, Bjørne continues.

 

He explains that such a fund would introduce new capital and tools to address the early stages of venture investment, both in cleantech and in other sectors.

 

- The national markets are often too small to generate good return on investments and there are clear advantages in developing a more integrated Nordic venture capital market. We would then see more specialized funds and increase the likelihood of attracting international investors to the region, says Bjørne.