Cleantech Report_2007

Earth, Wind, and Fire:
A Cleantech Perspective
IN THIS ISSUE
Cleantech Defined
Investment Trends: Venture Capital; Initial Public Offerings; Mergers
and Acquisitions
M&A Thesis on: Solar; Energy Storage; Water; Efficiency Technologies
°
°
°
April 2007
KEY CONTACTS
Melody Jones
SVB Alliant
Mergers and Acquisitions
mjones@svballiant.com
650.330.3076
Jeff Berry
SVB Alliant
Private Capital
jberry@svballiant.com
650.330.3778
°
°

earth, wind, and fire: A cleantech PERSPECTIVE
TABLE OF CONTENTS
1 Introduction: Cleantech Grows-up
2 Defining Cleantech: Is it an Industry, Sector, Theme or Application?
5 Cleantech Catches On: The Perfect Storm
7 Financing: Cleantech Gets the Green Light
11 Capitalizing on Cleantech: IPOs and M&A Activity
11 Cleantech IPO Listings and Indices
14 M&A Activity in Cleantech
19 Cleantech Segments Ripe for M&A
19 Solar Energy Heats Up
26 Efficiency Technologies
30 Energy Storage Technologies: Cheaper, Faster, Longer, Cleaner
36 Water Technologies
41 Risks and Reality Checks of Cleantech Investing
43 Concluding Remarks: Cleantech Spreads its Wings
44 About SVB Alliant
45 Appendix 1: Examples of Technologies in Each Cleantech Segment
47 Appendix 2: Most Active VCs in Cleantech as of December 31, 2006
50 Appendix 3: Cleantech Indices and Performance, 2005-2006
51 Appendix 4: Landscape of Solar Energy Companies
52 Appendix 5: Landscape of Efficiency Technology Companies
53 Appendix 6: Landscape of Energy Storage Companies
56 Appendix 7: Landscape of Water-tech Companies
58 Acronyms and Abbreviations
59 References
SVB Alliant would like to thank the Cleantech Group™ and Anastasia O’Rourke for their contribution to this report.
The Cleantech Group, which played a pivotal role in the growth of cleantech, brought a depth of knowledge and thorough
understanding of the diverse industries that provide cleantech solutions. Their discernment, insight and passion for
cleantech ensured that we had the highest quality data and resources available for our analysis.
Anastasia O’ Rourke substantially contributed to the research, writing and analysis of this report. Anastasia is completing
her Ph.D. at Yale University and is writing on the emergence of the cleantech industry.
Also, special thanks to Susan Seagren and Erik Hansen for their valuable contributions.

TABLE OF CONTENTS — FIGURES
3 Figure 1a Cleantech Sub-Segments
3 Figure 1b And Some of the Gray Areas in Cleantech
6 Figure 2 The Drivers of Cleantech are Fundamentally Global
8 Figure 3 Yearly VC Investment in Cleantech, Europe and North America, 2003-2006
9 Figure 4 Average Size of Deals per Cleantech Segment and Stage, Cleantech VC Investments, North
America and Europe, 2003-2006
10 Figure 5 Amount of VC Invested per Cleantech Segment, North America and Europe, 2003-2006
10 Figure 6 Amount Invested in Cleantech VC Deals by Stage of Investment, North America and Europe,
2003-2006
12 Figure 7 Activity of 57 European Clean Energy Companies Since 1999
12 Figure 8 Number of Cleantech IPOs in 2005-2006 by Exchange
13 Figure 9 Number of Cleantech IPOs in 2005-2006 by Country
13 Figure 10 Number of Cleantech IPOs in 2005-2006 by Secondary Segment
15 Figure 11 Number of Cleantech M&A deals 2005-2006 by Cleantech Segment and Location of Target
16 Figure 12 Regional Location of Targets, Cleantech M&A, 2005-2006
16 Figure 13 Types of Cleantech M&A Deals, 2005-2006
19 Figure 14 Sources of Energy in 2004
20 Figure 15 New PV Installation and Growth Rate, 2001-2005
21 Figure 16 Comparison of Power-Generation Costs, 2005
22 Figure 17 Technology and Market Maturity of Solar Energy Cell Technologies
23 Figure 18 Solar Energy VC, 2005-2006
24 Figure 19 Solar Energy M&A and IPOs, 2005-2006
24 Figure 20 The Crystalline Silicon Supply Chain: Prospective Changes to the Corporate Landscape
29 Figure 21 Efficiency Technology VC Investments, 2003-2006
29 Figure 22 Efficiency Technology, IPO and M&A Transactions, 2005-2006
31 Figure 23 Overview of Portable and Stationary Energy Storage Technology Applications
32 Figure 24 Overview of Energy Storage Technologies
35 Figure 25 Energy Storage VC Investments, 2003-2006
35 Figure 26 Energy Storage M&A and IPOs, 2005-2006
38 Figure 27 Worldwide Fresh Water Use
38 Figure 28 The Water Supply Chain
40 Figure 29 Water Technology VC Investments, 2003-2006
40 Figure 30 Water Technology M&A and IPOs, 2005-2006


Introduction: Cleantech Grows-up
Over the last two years, cleantech has grown up
and moved out of a niche category and into the
mainstream. The opportunity created by growing
global resource constraints, concerns over the
security of energy supply, and the recognition of
the environmental problems generated by current
industrial systems has led to a kind of tipping point.
Cleantech companies are beginning to mature into
mainstream businesses. Although the opportunity
is substantial, there are significant risks associated
with an area that is just beginning to find its way.
The enormous end market opportunities and diverse
applications of clean technologies has attracted an
increasing number of investors, particularly in the
last 12 months. According to the Cleantech Group
LLC, cleantech is now the third largest investment
segment behind software and biotechnology.
North American and European venture investing
in cleantech realized $3.6 billion in 2006, up from
$2.5 billion invested in 2005.
The principal catalyst for the explosive growth in
cleantech investment is the expanding realization
that clean technologies have enormous global end
markets and the ability to create economic windfalls
for investors, as evidenced recently by numerous
successful IPOs and increased MA activity. As
venture capitalist John Doerr of Kleiner Perkins
Caufield Byers proclaimed in 2005, “Greentechi
could be the largest economic opportunity of the
21st century”.
Despite all the discussion and momentum, cleantech
is not a well understood term. The characterization
of cleantech varies between venture capitalists
(VCs), industry pundits and companies. In order
to help bring some definition to the ambiguity, we
interviewed a number of VCs, entrepreneurs and
key players at large industrial firms to get their
perspective on what is and is not cleantech and their
thoughts regarding future exits, to which we’ve
added our own perspective.
This report is an exploration of the expanding
and maturing world of cleantech. First, we define
cleantech in order to help educate newcomers and
add clarity for cleantech industry veterans. Then we
give an overview of the technologies which typically
fall under the cleantech moniker, and discuss some
of the main drivers for its global growth. Next, we
summarize the tidal wave of investment into the
space, including which segments within cleantech
are more nascent and emerging, and which segments
are beginning to mature.
Finally, we discuss the exit opportunities on the
horizon. Which industries are ripe for consolidation
andwhichwilllikelysupportcompanieslargeenough
to enter the public markets? What types of firms will
be the likely consolidators and when do we believe
the consolidating begins? Four cleantech segments
we think are ripe for ensuing MA are identified:
solar energy, energy storage, efficiency technologies
(such as sensors, monitoring and control devices),
and water technologies. In each of these segments,
the drivers and industry dynamics underpinning
potential MA are very different, illustrating the
difficulty of defining and understanding cleantech.

Is cleantech an industry, sector, investment theme
(like biotech or information technology) or an
application? Most investors we spoke with feel that
cleantech is neither a sector nor an industry, but
rather an investment theme or category. We believe it
is a term that denotes a thread that crosses a number
of technologies and industries. Further, it is defined
by applications which achieve some environmental,
social and ultimately economic goals over incumbent
technologies or products.
Cleantechencompassestechnologicalinnovationsthat
cut through most of the industrial economy – from
energy and water to agriculture and transportation
to software and advanced algorithms. It builds on
innovations from other technology sectors such
as material science and nanotechnology as well as
increasingly more mature wireless technologies.
For this reason, VCs such as Erik Straser of Mohr
Davidow Ventures refer to cleantech as, “the second
wave of industrial technology.”
Many companies recognize the potential value
of using their existing technologies for cleantech
applications. This is facilitated by entrepreneurs
who have transitioned out of other sectors and
brought their expertise and skills to bear in cleantech
companies. This expertise has enabled knowledge
and technologies from other industries to be applied
to clean technologies, often resulting in cost
reductions and more competitive pricing. Miasole’s
roll-to-roll thin-film photovoltaic manufacturing
process is a prime example. By leveraging the
manufacturing technique developed for products
targeting the hard drive and telecom industries,
the company was able to vastly improve the
efficiency and cost profile of its roll-to-roll thin-film
photovoltaic (PV) manufacturing process.
So what is the common theme that brings all
these disparate technologies together? How do
we know a clean technology when we see it? We
asked several leading investors how they define
cleantech and below are some of the responses:
One of the most cited definitions of cleantech
is offered by the Cleantech Group: “Cleantech
is any knowledge-based product or service that
improves operational performance, productivity
or efficiency; while reducing costs, inputs, energy
consumption, waste or pollution.” ii
Diana Propper of Expansion Capital Partners
describes it: “On one side, cleantech is really
about resource efficiency and productivity in
supply – how to manufacture and produce to
save energy, water, materials, etc. On the other
side, these technologies are enhancing the
bottom line of customers.”
Raj Atluru of Draper Fisher Jurvetson says: “The
investment thesis is this: Technologies that help
to utilize your existing input resources more
efficiently within your business processes and
deal with the outputs of your operations which
have an increasingly high cost to manage.”
One source said, “I think the meaning of cleantech
is going to come under increasing scrutiny.
However, it’s very important that cleantech is
not defined too narrowly, that no environmental
activists get hold of the agenda. There are many
important innovations, e.g. coal gasification
that could really contribute to sustainable
development.”
—Anonymous
Though many VC funds rely on simple meta-
categorizations such as clean energy, water, air and
materials, the Cleantech Group categorizes cleantech
investments into 11 different sub-segments (Figure
1a). A list of example technologies within each of
these segments can be found in Appendix 1. Figure 1b
shows cleantech sub-segments in which cleanliness
may be suspect to some.
Defining Cleantech: Is it an Industry, Sector,
Theme or Application?


Figure 1b: And Some of the Gray Areas in Cleantech
Source: SVB Alliant, 2007
Clarification: Cleantech as an Application
Technologies are generally not intrinsically clean or
dirty in and of themselves. Their application deter-
mines the extent to which they reduce environmental
impact and can be called a clean technology. For
example, sensors can be used in cleantech applications
suchasinthedetectionofgasesforregulationofcarbon
dioxide (CO2), sulfur dioxide (SO2) or nitrogen
oxide (NOx) emissions or they can be used for non-
cleantech applications, such as in military operations.
In our view, these sensors are categorized as cleantech
products if they are used to improve environmental
performance, resource efficiency, and productivity.
Although many prefer not to use the word
environmental for fear of mixed perceptions
associated with the word, cleantech balances
both economic and environmental factors
in tandem, resulting in a more efficient use
of resources.
“Sorry, but being green, focusing the nation on
greater energy efficiency and conservation, is
not some girlie-man issue. It is actually the most
tough-minded, geo-strategic, pro-growth and
patriotic thing we can do.”
—Thomas L. Friedman, New York Times,
January 2006
Figure 1a: Cleantech Sub-Segments
Source: Cleantech Group, 2006
Air and Environment
Materials
Manufacturing and Industrial
Agriculture
Energy Infrastructure
Energy Storage
Energy Efficiency
Energy Generation
Transportation
Water and Wastewater
Recycling and Waste
Treatment
Nuclear Power Corn-based Ethanol Clean Coal
Biofuels from
Genetically
Modified Crops

The Meaning of Clean is Evolving
The concept of cleantech has its roots in a standing
tradition of improving the environmental performance
of industrial systems using technology, processes and
services. Hence, the specific applications we now
find in the cleantech universe span from older ideas
of cleaning up dirty industries to more recent ideas of
pollution prevention. The shift has parallels to that of
alternative medicines where the adage that prevention
is better than the cure reigns. Cleantech currently
includes technologies that address the following
broad themes:
Dirty industry modifications. Technologies that
cleanuppreviouslydirtyindustrieswherepollution
is already released. For example, technologies that
remediate contaminated land.
End of pipe. Technologies that reduce or control
environmental harm or externalities associated
with industrial manufacturing. Examples include
filters or scrubbers on smoke stacks or catalytic
converters on car exhaust.
Clean substitutes. Provide cleaner substitutes to
existing technologies or materials, often using the
same infrastructure. Examples include biofuels
like ethanol, or low toxic auto paints.
Efficiency. Enhance efficiency of existing pro-
cesses – so that fewer inputs used leads to reduced
outputs. Examples include energy efficient
lighting and building materials that enhance
thermal efficiency.
Pollution prevention. Eliminate pollution—for
example using sensors and monitors to optimize
process inputs in order to reduce NOx emissions.
°
°
°
°
°
Industrial ecology. Models of efficient use of
resources, energy and waste in a system-setting
using closed-loop design. An example of this
would be taking waste, energy or other materials
and turning it into a feedstock.
The meaning of clean will continue to evolve, as many
of these applications involve being cleaner than what
came before. In our opinion, the next step in the
evolution of cleantech will be improving technology
processes over their full life cycle. As cleantech
reaches larger scale applications, more questions
will arise about the externalities created by the clean
technologies themselves. Taking a life cycle view
means to consider how a specific product is made,
such as what materials, inputs, outputs and wastes are
created as a result of making the product. The aim is
to avoid shifting problems from one life cycle stage
to another, from one geographic region to another, or
from one environmental medium (air, water or soil)
to another.
“Putting renewable energy into an inefficient
system – is like having a Diet Coke with your
double bacon cheeseburger.”
—Joel Makower, CleanEdge
°


Cleantech Catches On: A Confluence of Drivers
“It’s almost like we are seeing the perfect
storm coming together. You have Iraq, Iran,
Nigeria, Venezuela, and then Katrina… People
recognize that where there is disruption there is
also opportunity.”
—Bryant Tong, Nth Power
Recently, many large corporations have been taking
a public stance of supporting the cleantech agenda.
A few examples include:
Dow’s sustainability goals include reducing its
energy intensity by 25 percent by 2015 and
increasing revenue from its sustainable chemistry
products and services.
DuPont’s recently expanded sustainability
commitments are expected to generate $6 billion in
additional revenue by 2015 and pledge to double
their investment in research and development
(RD) programs.
General Electric’s watershed Ecomagination™
initiative plans to generate $20 billion in annual
sales by 2010 from eco-efficient products and
services such as wind turbines, fuel-efficient
engines, energy-efficient appliances, solar energy
panels and water treatment systems.iii
Aside from improving their own environmental
performance and energy use, retailers such as Home
Depot, Office Depot, Staples and even Wal-Mart, are
also starting to look at cleantech for both top and
bottom-line growth. Wal-Mart set ambitious targets
of eventually being powered 100 percent by renewable
energy, making stores at least 25 percent more energy
efficient, and having a 25 percent reduction in solid
waste across all stores in three years.
°
°
°
Figure 2 illustrates the vast variety of conditions
facilitating both the current and future worldwide
adoption of cleantech. These drivers will affect
each of the cleantech segments differently and are
distributed across industries and regions.

Figure 2: The Drivers for Cleantech are Fundamentally Global
Aging infrastructure and historic
under-investment
Limited partner demand
Consumer demand for faster,
cheaper, lighter, cleaner products
Large companies’ corporate
greening efforts
Need for safe, reliable and clean
energy, water, and air
Demand pull
Environmental legislation
Climate change
International political instability
Energy security issues
Pricing and markets for externalities
e.g. CO2 emissions, Kyoto
International geo-politics
Socially responsible investors
Industry organizations
Policy incentives
Shareholder pressure on
environmental/social issues
Stakeholder pressure
Many cleantech funds and Fund of
Funds raised and closed
More evidence of returns
Human capital — successful
entrepreneurs transitioning
Supply of capital
Top tech IPOs in 2005
OutsourcingCommodities boom
International economic development:
e.g. BRICs
High and volatile oil prices
Resource scarcity
Squeeze on profit margins
Increasing urban populations
worldwide
Privatization
Pressure for productivity
Industry trends
Market liberalization
Propelling
cleantech
Technology advances and convergence


Financing: Cleantech Gets the Green Light
Thegrowthincleantechinvestinghasbeenstaggering
and there is no sign of a slowdown.
In addition to traditional venture capital, angel
investors, corporate venturing programs, later
stage private equity funds, project financiers, and
increasingly hedge funds, have all started making
investments into cleantech and may play an
imperative role in providing additional financing
for the most capital intensive segments.
Recently, many investment firms that focus solely
on cleantech have raised their second or third fund,
underscoring the limited partners’ (LP) growing
interest in cleantech. Chrysalix, Emerald Technology
Ventures (formerly SAM Private Equity), Expansion
Capital Partners, MissionPoint, Nth Power, and
Rockport to name a few have closed new funds in the
past year. Top generalist VC funds are also investing
across the spectrum of cleantech segments. Kleiner
Perkins Caufield Byers has dedicated $200 million
to what they refer to as greentech investments
which attracted much buzz. Further reflecting the
perceived LP demand, several cleantech fund of
funds are being launched, including Macquarie
Bank (Australia), Piper Jaffray (U.S.), Royal Bank of
Canada (Canada) and Triodos Bank (Netherlands)
and others are rumored to be in the works. Appendix
2 shows a list of top VC investors by number of
reported transactions in cleantech.
Cleantech as a concept has gained the most traction
with the venture capital community in North
America. From 1999 through the end of 2006,
investors in North America and Europe committed
a total of $9.4 billion to cleantech investments. 2006
saw dramatic growth in dollars invested. In North
America and Europe, venture capitalists placed
approximately $3.6 billion in cleantech companies
in 2006, up from $2.5 billion invested in 2005
(Figure 3). The third and fourth quarter of 2006 also
saw several large ($50 million) deals in biofuels,
batteries and energy storage, and recycling. The data
shows that Europe typically invests between 20 and
35 percent of total North American VC investments
(in cleantech) by amount and that investments are
typically smaller in size.
Bryant Tong from Nth Power argues that the
recent increase in valuations and number of
deals is a misnomer. “We have to remember that
the growth numbers of cleantech investing are
relative to what was going into it earlier – not to
the size of the total market.” Tong says, “I would
argue that there is a huge market ahead of us and
opportunities to put a lot more money to work.”
Raj Atluru goes on to add that “What really
excites VCs is the quality of entrepreneurs that
are going after opportunities in cleantech coupled
with what we believe are really transformative
technologies.”
Further, Ira Ehrenpreis of Technology Venture
Partners believes, “The lack of RD spending
in large utility type companies is a great
opportunity for start-ups to move into under-
innovated verticals.”
Within the different subcategories of cleantech, there
is a broad disparity of venture capital investment
and interest (Figure 5). Clean energy dominates,
with around 45 percent of the total investment in
North America and 75 percent in Europe. Within
the energy space, energy generation (i.e. solar,
biofuels, wind, wave and tidal, geothermal and waste
to energy) take the largest portion. A notable recent
trend is the rise of biofuels, capturing a whopping
69 percent of cleantech investment in the third
quarter of 2006, for a total of $0.5 billion. This is
arguably due to the fact that manufacturing biofuels
is capital intensive and currently enjoys U.S. Federal

and state subsidies.iv Investors appear unconcerned
about the perception that, as one anonymous source
put it, “ethanol is the redneck of cleantech” and
that production plants for fuel are not traditional
venture plays.
A significant sign of the health and maturation
of cleantech is the increase in the number of mid
to later stage deals. Figures 4 and 6 illustrate this
evolution from seed to later stage investments in
North America and Europe. In the second quarter
of 2006, more than 93 percent of the more than $1
billion invested in cleantech was into expansion or
later stage rounds, dropping slightly to 88 percent
of approximately $0.9 billion in the fourth quarter.
With so many investments in expansion stage
companies from 2003 to 2005, we expect cleantech
IPO and MA activity to pick up in the next two
to three years.
Figure 3: Yearly VC Investment in Cleantech, Europe and North America, 2003-2006
0
500
1000
1500
2000
2500
3000
3500
4000
2006200520042003
559
297
332
397
335
973
567
1,209
854
1,632
695
2,902
Europe
North America
Total Number of Deals
(in U.S. Millions)


Figure 4: Average Size of Deals per Cleantech Segment and Stage, Cleantech VC Investments,
North America and Europe, 2003-2006
WaterWastewater
Transportation
RecyclingWaste
Materials
Manufacturing/Industrial
EnergyStorage
EnergyInfrastructure
EnergyGeneration
EnergyEfficiency
AirEnvironment
Agriculture
16
14
12
10
8
6
4
2
0
Expansion
Early Stage
Startup/seed
(in U.S. Millions)

10
Figure 6: Amount Invested in Cleantech VC Deals by Stage of Investment, North America
and Europe, 2003-2006
Figure 5: Amount of VC Invested per Cleantech Segment, North America and Europe, 2003-2006
Energy Storage
$1,308
Energy Infrastructure
$510
Materials
$849
Recycling Waste
$568
Transportation
$285
Water Wastewater
$406 Agriculture
$404
Air Environment
$637
Energy Efficiency
$782
Energy Generation
$2,976
Manufacturing/Industrial
$456
(in U.S. Millions)
(in U.S. Millions)
Early Stage $1,916
(466 Deals)
Startup/Seed $202
(168 Deals)
Expansion $7,062
(722 Deals)

11
Capitalizing on Cleantech: IPOs and
MA Activity
Rob Day of @Ventures explains that, “[cleantech
investors] until now have been at the proliferation
stage. The next is harvesting those investments.”
For the period from 1995-2004, the Cleantech
Group reported that approximately 92 percent of
the successful exits in cleantech worldwide were via
MA and eight percent were via IPO. Although
many cleantech funds have been successful in raising
capital with limited partners, Even Bakke of the
BankInvest Group in Copenhagen explains that as
a young sector with a limited track record, “The
main question everybody has is if this sector can give
VCs required returns.” A November 2006 study
performed by New Energy Finance and European
Energy Venture Fair indicates venture-grade returns
on cleantech investments may be possible. Albeit
only a small sample size of 57 European clean
energy companies were surveyed, the study tracked
the financing activity of those companies since
1999. Investors realized returns on eight of the 57
investments (Figure 7).
cleantech ipo listings
and indices
The buzz in cleantech hasn’t been limited to new
investments. Recently there have been several high-
profile, high-return exits via the equity markets,
especially in the solar space. In 2005, Conergy,
Q-Cells, SunPower and Suntech Power raised a
combined total in excess of $1.1 billion. This trend
continued in 2006 where there were several more
solar IPOs but attention shifted to the biofuel
industry with the successful IPOs of Aventine
Renewable Energy Holdings, U.S. Bioenergy,
Verasun Energy and Verbio together raising in
excess of $1.2 billion (Figure 10).
As a category, cleantech IPOs are being well received
by the public markets and investor appetite for new
listings is on the rise. In 2005, cleantech IPOs raised
$2.6 billion and in 2006, this figure nearly doubled
to $4.9 billion.
It’s a well-known fact that IPO activity in the U.S.
has been down since 2002 due to economic, market
and regulatory environments. This has served to
create pent-up demand on the part of institutional
investors. While the U.S. markets are beginning to
open up, cleantech IPOs in 2005 and 2006 have been
carried out predominantly on smaller international
exchanges such as the London Stock Exchange’s
Alternative Investment Market (AIM), the Frankfurt
Stock Exchange as well as on exchanges in Oslo,
Mumbai and Sydney among others (Figure 8). AIM
in particular is attracting a diverse and international
group of company listings, with 27 cleantech listings
collectivelyin2005and2006andseveralmorepending.
Many believe that companies listing on AIM are still
early stage and are using the listing more to access
mezzanine-type equity than they are to provide
liquidity to early investors, though some investors are
able to exit as well. Some concerns remain on the thin
trading and volatility of these stocks.
As far as returns are concerned, new cleantech
listings have performed well as a category. Cleantech
companies which went public in 2005 were up
an average of 32 percent from file to 2006 year
end price. Cleantech IPOs from 2006 were up an
average of 21 percent. Solar IPOs from 2005 and
2006 had strong after-market performance from file
to 2006 year end price with an average increase of
38 percent. Biofuels and other energy generation
technologies, such as wind, also performed well
with an average return of 24 percent and 68 percent,
respectively for the same time period. This was

12
followed by energy storage companies at 8 percent,
manufacturing and industrial companies were flat
on average and water and wastewater companies
lost an average of 31 percent.
Furthermore, we analyzed the spread between
file and offer prices to determine relative demand
for cleantech stocks during the roadshow period.
Although this data is publicly available for less than
half of the new listings, the information that is public
indicates positive investor demand. The average
premium to the initial midpoint filing for cleantech
IPOs was positive in both 2005 (eight percent) and
2006 (seven percent) further emphasizing the healthy
appetite for cleantech investments by institutional
investors. From 2005 through 2006, solar IPOs have
demonstrated by far the largest investor demand at
an average premium of 16 percent.
Figure 7: Activity of 57 European Clean Energy Companies Since 1999
Source: New Energy Finance and European Energy Fair, 2006
Figure 8: Number of Cleantech IPOs in 2005-2006 by Exchange
Trade Sale:
3
Liquidated:
6
2nd Round of VC:
9
No NewFinancing:
34
IPO:
5
30
25
20
15
10
5
Other European
Exchanges
Australian
Stock Exchange
Asian
ExchangesNYSENASDAQ
Xetra/Frankfurt
Stock ExchangeAIM
27
13
9
4
3
2 2
Number of Listings

13
Figure 10: Number of Cleantech IPOs in 2005-2006 by Secondary Segment
Figure 9: Number of Cleantech IPOs in 2005-2006 by Country
3
6
9
12
15
IndiaOtherAustralia
Other
EuropeChinaGermany
United
States
United
Kingdom
15
13
12
6
5
4
3
2
Number of Listings
5
10
15
20
Recycling
and Waste
Water and
Wastewater
Manufacturing
Industrial
Other Energy
Generation
Energy
StorageBiofuelsSolar
18
14
9
8
7
3
1
Number of Listings

14
More IPOs can be expected in the coming years as
venture funding remains active, cleantech companies
mature and as public markets and institutional
investors become increasingly informed about and
enamored with the concept of cleantech.
Variouscleantechindiceshavebeenlaunchedrecently,
some focusing on cleantech public companies by
region (e.g. in North America or international) and
others on sub-segments such as clean energy or
water technologies. A few have recently added an
exchange traded fund (ETF) to invest in the index.
Appendix 3 lists four of the most widely quoted
indices in cleantech.
ma activity in cleantech
In our opinion, MA activity in cleantech will ramp
up in the next 18 to 24 months. There are several
drivers, not the least of which will be investors who
want to exit existing investments. We expect that
many private companies looking to scale quickly,
capture market share and access larger global markets
will turn to MA to obtain the required capital,
distribution channels and critical mass.
Joel Makower of Clean Edge observes three waves
of corporate engagement with environment issues:
Wave 1: “do no harm”;
Wave 2: “do well by doing good” (improving the
bottom line through improved efficiencies); and
Wave 3: “growing the top line through innovation”.
°
°
°
These waves have all created huge market
opportunities for cleantech companies but we
believe the third wave will be a key motivator for
acquisitions, particularly by industrial companies.
These initiatives, in turn, will assist small and
mid-size cleantech companies to achieve the scale
necessary in order to appeal to potential industrial
acquirers. As one business development professional
at one such firm explains, “The win for the other
party would be our brand name and scale to put that
company on the map and give it some acceleration
into commercialization.” (Anonymous)
Done Deals: Watershed moments in
Cleantech MA
There has already been some meaningful MA
activity in cleantech. Well-known conglomerates
such as ABB, Air Products and Chemicals, Danaher,
General Electric, Honeywell, ITT, and Siemens have
all been active acquirers.
We screened numerous databases to develop an
extensive list of cleantech MA transactions
worldwide. Our analysis indicates there were
at least 540 transactions in 2005 through 2006v
(Figure 11). Although the data does not include all
MA activity due to limited disclosures, some
preliminary analysis of this data suggests the
following patterns:
Forty-five percent of cleantech MA transactions
had buyers that were already fully or partially
active in the cleantech space, while 42 percent
were buyers not otherwise exploiting cleantech
markets. The other 13 percent of transactions
were by investment funds, including private
equity shops not typically focusing on cleantech
investment themes.
°

15
Investment funds and non-cleantech buyers
invested most heavily in energy generation
companies, followed by water and wastewater,
and recycling and waste companies.
In cases where both the buyer and target are
identifiably cleantech, MA deals tended to
be either outright acquisitions or divestures of
business units. A smaller number of cleantech-to-
cleantech minority-stake transactions were found
and very few (only three) mergers of equal-sized
companies were found (Figure 13).
Acquisition is one thing, but how have acquired
companies performed as part of a larger entity?
Have they commercialized and reached the scale
and profitability that was anticipated? Here we only
have anecdotal evidence. For example, when General
Electric acquired Enron Wind in 2002, revenue at the
time was estimated to be several hundred million
°
°
per year. Today, yearly revenue for this unit of
General Electric’s sits at close to $3.5 billion per year.
Numerous questions remain unanswered. Will
future acquisitions in cleantech be more about the
technology, market share, or geographic expansion?
Because cleantech is so heterogeneous, MA
drivers and dynamics in each segment will differ
enormously. We can, however, note some of the
meta-trends that will likely occur on the side of the
buyers and sellers.
Looking Forward: Will a Clean Wave carry us
home or dump us on the shore?
We believe MA will likely continue on a greater
scale in terms of the number of total acquisitions as
wellasvaluationspaid.Here,wehaveidentifiedsome
of the more general trends which are particularly
relevant to cleantech as a whole. We will delve into
more detail on a few subcategories later.
Figure 11: Number of Cleantech MA deals 2005-2006 by Cleantech Segment and Location of Target
Water and
WastewaterTransportation
Recycling
and WasteMaterials
Manufacturing
Industrial
Energy
Storage
Energy
Infrastructure
Energy
Generation
Energy
Efficiency
Air and
EnvironmentAgriculture
10
37
43
243
27
13
31
12
57
5
57
South America
Asia/Pacific
Europe
North America

16
Figure 13: Types of Cleantech MA Deals, 2005-2006
Figure 12: Regional Location of Targets, Cleantech MA, 2005-2006
Take Private 4 (1%)
Minority Stake
Transaction 85 (16%)
Merger 6 (1%)
Divestiture 151 (28%)
Aquisition 289
(54%)
Asia/Pacific 80
(15%)
North America 216
(40%) Europe 229
(43%)
South America 9
(2%)
Africa 1
(0%)

17
acquirer demand vs. supply
Ali E. Iz, General Electric said, “After we have
formulated our business strategy, we look at
where we have gaps and then try to fill those either
organically with new technology and product
development, or in-organically with acquisitions.
It depends whether we think we can do it better,
faster, cheaper internally or whether we have to
go and acquire someone.”
Speaking to several key individuals from large
industrial conglomerates as well as leaders
in the venture capital industry, the following
generalizations were observed about cleantech
acquisitions:
Large industrial conglomerates prefer acquiring
companies rather than technologies. Typically
these conglomerates are not accustomed to
acquiring technologies and incubating them in
house as Bruce Jenkyn-Jones of Impax Capital
argued. For example, one company stated: “We
would rather wait until the company proves the
technology and has some revenue and growth, and
then acquire it.” (Anonymous) Many industrial
conglomerates have immensely different cultures
and risk tolerance than entrepreneurial start-ups
and therefore do not have the infrastructure in
place to nurture a fledgling technology or retain
some of the talent that start-ups attract. These
buyers generally prefer to acquire companies at or
near profitability.
Disparity in valuation expectations. Proven
companies are typically more expensive to
acquire and it remains unclear whether industrial
conglomerates will pay the types of multiples
(typically higher than their own) that VCs and
their LPs expect from their investments. Because
many of the prime acquisition targets are likely to
°
°
be venture-backed and have significant amounts
of invested capital, shareholders are likely to seek
and expect lofty valuations that are in line with
technology industry valuations. It is not yet clear
whether the larger, more industrialized acquirers
would be willing to pay up. We believe end-
market demand and size will play the dominant
role in determining the answer to this question.
Exceptions exist for both stage and value.
Despite a clear preference for more mature target
companies, several companies also mentioned that
there are always exceptions. Potential acquisition
targets are also assessed in terms of what value
the larger company can bring, and how well
their products might fit together. For example
one company representative stated “The idea is a
technology that is proven to some scale with some
commercial success but that has some hurdles
we are uniquely suited to help them overcome.
So then our combination of cash and know-how
will be brought to bear in part or in its entirety.”
(Anonymous)
With acquirers setting certain criteria for what
they would buy, will there be enough of the
right type of cleantech companies to fit these
parameters? Will we see more large companies
making more exceptions to their stated policies as
competition heats up?
°

18
Mergers and Rollups
For mergers and acquisitions by existing cleantech
companies, some different dynamics emerge:
Gain market share. As more cleantech companies
emerge and begin competing with each other,
mergers may be made to gain market share in new
and fast growing markets as well as to increase
barriers to entry. Existing cleantech companies
may want to vertically integrate in order to
secure intellectual property (IP), access strategic
resources and reduce costs.
Vertical specialization. In general, we suspect
several cleantech segments will begin to vertically
combine,allowingcompaniestoprovideintegrated
solutions to customers. For example, a company
couldprovideacompleteenergyefficiencysolution
for building managers, including sensors, high
efficiency heating, ventilation, air conditioning and
lighting equipment and even insulation products.
Capital constraints. The question remains
as to whether cleantech companies will have
sufficient capital to both invest in the business and
make acquisitions. Due to the significant capital
requirements of several cleantech segments, many
cleantech companies will find it difficult to secure
enough cash to make acquisitions.
Beyond Acquisitions: Other Cleantech Strategies
for Large Firms
Even if many of the larger conglomerates are
not jumping to acquire cleantech companies, their
involvement and enthusiasm is significant and we
believe indicative of a future wave of acquisitions.
Below are a few of the ways large firms are beginning
to get their feet wet and gain exposure to clean
technologies.
°
°
°
Internal research and development and creation
of new business units to serve cleantech areas.
Rebranding existing products and services
for cleantech applications. Similar to how
GE’s Ecomagination renamed many existing
technologies and initiatives.
Establishing joint ventures and partnerships
with cleantech companies to gain exposure to their
technologies and markets.
Dedicating corporate venture funds to cleantech
investing in order to get a window on the
technologies as well as to make financial returns.
Spinning-out existing technologies to other
companies, start-ups or otherwise, while still
getting access to technology through licensing
agreements.
Expanding corporate environmental health,
safety and sustainability programs and expertise
to cleantech applications.
°
°
°
°
°
°

19
Cleantech Segments Ripe for MA
Due to its broad applications and end markets,
cleantech exit activity will differ greatly in terms
of the buyers, sellers, timing and valuation. Some
technologies are more advanced and could be ripe for
consolidation as we’ve started to see with wind and
solar; others are in their infancy such as bio-based
materials, marine energy technologies, superconduc-
tors and waste-reducing plasma technologies.
We expect there will be a wave of MA exits
beginning in 2008 and accelerating 2009. In what
follows, we profile some of the exit dynamics in
four cleantech segments: solar energy; efficiency
technologies (sensors, monitoring and control
devices); energy storage; and water technologies.
These four segments were selected based on
interviews with VCs, market dynamics, an analysis
of where the venture dollars have been placed in
the last three to five years, and the relative maturity
and growth rate of the different segments. Each of
these segments could easily fill an entire paper. Here
are some high-level thoughts on the technologies,
markets and MA dynamics of each.
solar energy heats up
Solar is one of the fastest growing energy tech-
nologies in the global economy and in the cleantech
universe. In 2005, the size of the market nearly
doubled year over year to $7.6 billion and has seen
an annualized growth rate of 36 percent over the last
six years, according to the Solar Energy Industry
Association. However, to put this in some perspective,
solar energy accounted for less than 0.1 percent of
electricity generated globally in 2005 (Figure 14).
At present, market demand for solar cells significantly
outstrips supply. Recognizing this market dynamic,
entrepreneurs and venture capitalists have seized the
opportunitytoaddressthisgapanddriventremendous
investment in the solar supply chain and technological
innovation. In addition, numerous successful equity
exits for VC investors in solar companies have taken
place in 2005 and 2006 which has broadened the
potential buyer universe. We believe an increased
need to stay ahead of the technology curve will drive
a healthy MA market for solar. Therefore, of all
cleantech segments, we expect solar to see the most
MA activity in the near term.
Figure 14: Sources of Energy in 2004
Source: IEA, 2006
Crude Oil 38%
Biomass 4%
Geothermal 1%
Hydro 2%
Waste/Combustion 2%
Coal 24%
Natural Gas 21%
Nuclear 6%
Solar 0.1%
Wind 2%

20
The single biggest factor explaining the rapid
growth of the solar industry to date has been
extensive governmental support in the form
of subsidies; it is also the biggest risk facing the
segment. From a regional and historical perspective,
German and Japanese governments have led the world
in subsidies for solar production and installation. As
a result, these countries account for more than 40
percent and 35 percent, respectively, of cumulative
photovoltaic (PV)-system installations by capacity,
while the U.S. accounts for 12 percent and China
for just 2 percent. Despite recent cut backs in Japan’s
subsidies, the market continues to grow there. China
is increasing its share of solar cell manufacturing,
and significant growth in installations is expected
over the next decade as the 2005 Renewable Energy
Law is implemented. This law set targets that 20
percent of primary energy in China be produced from
renewable sources by 2020. However, insiders think
it is unlikely that China will adopt solar technologies
quickly unless there is a major cost reduction versus
coal-base load generation.
Solar is still the most expensive technology to
produce, per watt, as can be seen in analysis performed
in Figure 16. However, these cost comparisons can
be misleading, as once installed, solar does not face
fuel costs, and maintenance and transmission costs
are limited. On-grid solar power competes with grid
prices not generator costs. Analyst Michael Rogol,
formerly of CLSA Asia-Pacific Markets, explains
that grid prices include generating costs, transmission
and distribution costs, taxes, profits and other
fees.vi The economics of solar are therefore closely
tied to geographically determined grid price per
kilowatt hour. To gain a clear understanding of how
solar compares in terms of price per kilowatt hour,
one would have to cut into grid prices in different
regions, comparing costs today, in five years, and in
ten years. Off-grid applications, such as remote area
power supply, are more able to compete directly
with alternative sources of energy without the need
for subsidies.
Figure 15: New PV Installation and Growth Rate, 2001-2005
Source: SolarBuzz, 2006
1600
1400
1200
1000
800
600
400
200
MW
90%
80%
70%
60%
50%
40%
30%
20%
10%
1460
1086
598
427
345
33%
24%
40%
82%
34%
2001 2002 2003 2004 2005
New PV Installation
Growth Rate

21
Thepaybackperiodforend-usersofaninstalledsolar
system will depend on factors such as: the initial cost
of installation (which is also on the decline), grid-
electricity prices, access to governmental incentives
and subsidies, the efficiency of the system, the life
span of the installation and, fundamentally, how
much solar radiation (sunlight hours and intensity)
is in that location.
Aside from direct governmental support, there
are several other factors that are stimulating the
solar market:
Conventional fossil fuel prices are increasing, and
as a result electricity prices are becoming more
volatile. Solar typically competes with peak energy
production as supplied by gas-fired turbines.
Costs of solar technologies continue to decline
and are becoming more competitive as new
technological innovations are being incorporated.
°
°
Concerns about climate change are causing
many governments to strengthen emissions
regulations and efficiency standards, resulting in
an increase in the price of conventional fossil-fuel
energy sources.
A Brief Solar Energy Technology Overview
Mostofthegrowthinthesolarenergymarkethascome
from electricity producing cells and modules using
photovoltaic technologies. There are several types of
solartechnologieswhichrangeintheirlevelofmaturity
(Figure 17). By far the largest market share is held by
crystalline silicon solar technologies, accounting for
93 percent in 2005. Solar concentrators (solar panels
are equipped with mirrors to focus the sun rays on
a small photovoltaic cell) and solar thermal electric
power plants (that generate electricity by converting
solar energy to heat to drive a small thermal power
plant) have also increased in popularity for large
scale installations due to their efficiency in silicon
use. Next generation solar technologies that could
°
Figure 16: Comparison of Power Generation Costs, 2005
Source: International Energy Agency and DAIWA, 2006
40
35
30
25
20
15
10
5
OilNuclearGasGeothermalOilWindBiomassSolar
25-40
1-15
4-10
6-8
5-75-7 2-7 2-6
2-4
(U.S.¢/KWh)

22
fundamentally change the cost structure of the solar
industry include: thin-film technology (including
amorphous silicon [a-Si], cadmium telluride [CdTe],
copper indium selenide [CIS], ribbon crystalline
silicon [c-Si] and copper indium gallium diselenide
[CIGS]), organic photovoltaics, and dye-sensitized
cells using nanotechnology.
In addition, a range of technology components are
required to support any active solar energy system.
Such components include packaging, electrical
connections, inverters, wiring and mounting, and
batteries (where needed, most solar systems are
now connected to the grid). The solar industry also
includes services for the sale, design, installation,
maintenance, financing, permitting, and accessing
the various government incentives aimed to support
solar power use.
Given the dominance of crystalline silicon technology
today, solar companies’ profitability and growth
depend on raw silicon material prices. There has been
a shortage of polysilicon for the industry since early
2004, when the industry experienced an increase in
demand. This shortage is not so much one of the actual
raw material, rather of polysilicon refining capacity.
The shortage has had a strong impact on the market:
Constrained the supply of cells;
Increased volatility and prices to end consumers;
Prompted some cell producers to lock-in forward
contracts for 10+ years for silicon supply; and
Spurred innovations in the development of low or
no silicon solar cells.
The common belief is that the polysilicon shortage
is expected to ease in late 2008, primarily due to
new manufacturing capacity coming online. This
capacity expansion is expected to result primarily
from the major existing polysilicon manufacturers,
but also from new upstarts that have plans to
°
°
°
°
Figure 17: Technology and Market Maturity of Solar Energy Cell Technologies
MARKET MATURITY
TECHNOLOGYMATURITY
Electrochemical
Solar Concentrators/
Large-Scale Thermal
Thin-film PV
Ribbon Crystalline Si PV
Single-Crystalline Si PV
Multi-Crystalline Si PV

23
enter the market. However, people close to the
polysilicon manufacturers suspect that an imminent
easing of the supply shortage is illusory, since
some technical problems have been experienced in
planned production expansion.
Investment Trends and MA Forecasts for Solar
Energy Companies
Solar energy technologies have received consider-
able venture funding in the past three to five
years, especially those technologies that aim to
make solar energy cheaper, safer, faster to produce
and easier to install (Figure 18).
The popularity of solar has led to some high
valuations in both private and public markets.
Many see this as unsustainable and expect price
corrections even though growth in the market is
expected to continue. Some reshuffling within the
industry is likely to occur, prompted by the drive
for cost reductions, a possible winding back of
government subsidies and technological advances.
Possibly a more important driver will result from
the large amount of investment that has been poured
into the sector over recent years. We anticipate
there may be a change in landscape through the
availability and acquisition of bankrupt companies,
namely manufacturing facilities which are building
plants expecting polysilicon to come online. If new
supplies of polysilicon don’t come in time, those
assets may be bought up for pennies on the dollar.
“There has been so much focus on technology
innovation for cells and modules, but really it is
the total installed system cost and innovations in
business models that will really shape the market.”
—Lisa Frantzis, Director, Renewable and Distributed
Energy, Navigant Consulting
Figure 20 shows of the major supply chain stages in
the creation of crystalline-silicon solar cells today.
The arrows indicate how companies in the supply
chain could shift due to MA activity (see Appendix
4 for a list of solar companies).
Figure 18: Solar Energy VC, 2005-2006
Source: Cleantech Group and SVB Alliant, 2007
Startup/Seed
Early Stage
Expansion
300
250
200
150
100
50
Thermal/
Hot Water
Installers/
IntegratorsConcentratorsThin film
CrystallineSi
Cells/Modules
Nano NewPV
Materials
11 11
4
6
1 2
8
4
5
19
4
11
22
3
5
17
Note: Numbers
at top of columns
indicate the number
of deals for each
segment and stage.
Column height
indicates total
amount invested.

24
Upstream and Midstream vertically integrated companies will grow
in dominance and integrate downstream
Midstream Producers will integrate upstream and downstream
Partially integrated companies will integrate upstream to secure
silicon supply
Raw Material and Ingot
producers will focus more
on upstream
Horizontal Integration of specialist companies within each step of the supply chain
Upstream Midstream Downstream
Raw
Material
Ingots/Wafers Cells Modules
System
Integraters
Installation
Balance of
System
Components
Customer
Use
Figure 20: The Crystalline Silicon Supply Chain: Prospective Changes to the Corporate Landscape
Figure 19: Solar Energy MA and IPOs, 2005-2006
5
10
15
20
10
20
5
13
1 1 1
3
1
3
Thermal/
Hot WaterConcentrator
Thin
Film
Nano and
New MaterialsComponents
Installer/
Integrator
Crystalline Si
Cells/Modules
1
2
M A: Total 43
IPOs: Total 18

25
We expect the solar MA market to develop in the
several ways.
Upstream Pressure: Midstream companies, such
as wafer and cell manufacturers, will seek to secure
their silicon supplies, either by more aggressive
forward contracts or outright purchasing
of upstream companies, such as raw material
providers. Weaker and newer upstream players
are already beginning to exit from the capital-
intensive upstream business, taking advantage
of the current conditions. Existing raw material
producers will ramp up production.
Downstream Consolidation: We expect
consolidation to occur around the currently
fragmented group of downstream system
integrators and installers of solar cells. The
shortage of polysilicon has squeezed many of the
smaller players’ ability to access product, so larger
consolidated groups might join forces to leverage
more purchasing power. New entrants may try
to roll-up some of the existing industry, or cell
and module producers who have recently gone
public may vertically integrate to access larger
downstream markets.
Technology Hedging: Some horizontal inte-
gration could also occur within the industry as
midstream companies, especially larger crystalline
silicon cell and module producers, seek to hedge
their exposure to new lower-cost technologies
such as thin-films. They will do this either by joint
ventures and partnerships or smaller acquisitions.
We have already seen some technology plays. For
example, Shell Solar sold its crystalline silicon
business to SolarWorld, instead focusing on its
thin-film technologies.
°
°
°
“Scale is important in the solar cell industry, so
you may have fewer players with larger production
capacities.” —Ali E. Iz, GE Infrastructure
Recent Headline Acquisition: SunPower
buys Powerlight
Downstream systems integrator PowerLight was
bought in November 2006 by public cell and panel
maker SunPower for $332.5 million - a sign of
the coming wave of MA in solar and increased
global competition. SunPower’s CEO Tom Werner
said “Together, SunPower and PowerLight aim to
accelerate the reduction of solar power costs to
competewithretailelectricrateswithoutincentives.”
The real test for the newly merged company will
come in late 2008, when the polysilicon shortage
will either ease or remain tight.vii
Technology Positioning: Q-Cells invests in
next generation technologies
Following their successful IPO in 2005,
Q-Cells has invested in three next generation PV
technology companies: CSG Solar (producing
thin silicon film deposited on glass); Solaria
(developing low-silicon concentration PV
technology); and EverQ (developing string ribbon
technology for wafer production) which is a joint
venture with REC and Evergreen Solar. viii
We expect that no single technology will claim
a winner-takes-all position, rather that different
solar technologies will be employed for different
applications. The most successful companies will
service these different needs rather than focus on a
single technology. Thus as markets become more
sophisticated, companies may begin to segment into
categories by type of customers, such as residential,
commercial buildings and utility scale. Rodrigo
Prudencio of Nth Power notes that, “As an industry,
solar will start to specialize in pieces of the value
chain,” which would break up some of the vertically
integrated manufacturers. Barring a major exogenous
shock, we believe that the solar energy industry’s
remarkable growth will continue.

26
efficiency technologies
Sensors, monitoring and control, or what we refer to
as efficiency technologies, are becoming ubiquitous,
finding their way into almost all industries as well as
mostcommercialandresidentialbuildings.Advances
in wireless connectivity and software have further
extended existing sensor applications and enabled
new ones from improved industrial process controls,
to buildings, transportation and logistics.
Companies offering sensing, monitoring and
control technologies allow users to more precisely
designate resources and respond to information in
real time, often with dramatic efficiency gains that
result in meaningful cost savings.
Many efficiency technologies can be classified as
cleantech due to their applications and resulting
efficiencies. For example, process controls can
help to reduce the use of materials, energy and/or
water in production facilities, processes, buildings
and appliances. Sensors can help reduce accidents,
identify leaks, detect contaminants and often
dramatically reduce waste. Combined with wireless
mesh networks and overlaid with software, sensors
and control systems can now be installed over
wide areas.
Recent advances in sensors, monitoring and
control systems have been enabled by innovations
from other technology sectors, including
optics, telecommunications, machine-to-machine
monitoring, micro-electromechanical systems
(MEMs) and automation networks, wireless mesh
networking and artificial intelligence. Advances
in battery design for these devices have also made
many new applications possible. For example,
self-powered sensors that harvest minute amounts
of energy from their surrounding environments
eliminate the need for frequent battery changes and
further facilitate autonomous sensor networks.
Efficiency technologies can be found in many
industries. The three that have direct cleantech
applications are:
Industrial Process Monitoring and Control
Technologies
Environmental Controls (i.e. indoor climate
control)
Transportation and Logistics Management
Some companies offer solutions that cross these
three applications, examples in each category are
given in Appendix 5.
1. Industrial Process Monitoring and Control
concerns the augmentation of product integrity,
manufacturing efficiency and plant safety.
Companies under pressure to increase the efficiency
of their materials and energy use, lower their waste
and emissions and improve process control have
begun incorporating sensors, monitors and controls
to clean up their processes. The main industries
using these devices are industrial processing and
manufacturing industries (such as for chemicals,
food and beverages, and paper products), utilities,
and resource extraction. Systems integration has
been a driving force in process control technology,
with particular emphasis on linking sensors,
actuators and other field instrumentation on the
process plant floor.
1.
2.
3.

27
Two recent innovations in the industrial process and
control segment are:
The use of MEMs to perform electromechanical
functions such as sensing, switching and actuating.
The development of biosensors, which are
chemical sensors with a biological sensing element
with applications in food processing, bioprocess
control, and pharmaceutical development and
manufacturing.
2. The Environmental Control market is made
up of technologies used to monitor commercial
and residential buildings, and to control major
appliances. For example, the sensors used for indoor
environmental control in heating, ventilation and
air conditioning (HVAC) and lighting systems
include thermostats, motor protectors and
computerized energy controls. The growth of
sensor, monitoring and control technologies in
this segment is being driven by demand for making
buildings of all types more energy efficient as well
as a growing awareness of indoor air quality and
its link to health.
The environmental control segment has been
transformedinrecentyearsbyadvancesinweb-based
communications and various software applications.
Large integrated systems are being installed in
commercial, residential and hotel buildings to
reduce energy costs and monitor and control HVAC
and other safety systems. For example, research
firm Frost and Sullivan predicts that by 2008, half
the sensors in HVAC systems will be wireless.
Wirelessly networked sensors are gaining popularity
due to reduced time and expense for installation of
new sensor devices and improvements in the ability
to network pre-existing legacy sensors.
°
°
3. The Transportation and Logistics Industry
worldwide is facing pressure to become more
technologically advanced, operate more efficiently,
reduce costs, reduce cycle times in supply chains and
reduce its environmental impact. With the need to
transport goods across long distances, supply chains
need to be monitored, organized and controlled
and by doing so, environmental performance can
often be improved. Aside from the mega-trends
of offshoring and globalization, a major shift in
the transport and logistics industry is towards the
creation of more dynamic supply networks that use
adaptive planning, a distributed control of supply
network operations.
Technology that allows products, cases, pallets,
trucks or any other moving part of a supply chain
to connect to a network and be monitored or
communicated with, offers many efficiency
advantages for supply chain managers including
the ability to track inventory and thereby better
plan resource usage. As a consequence, they are
also better able to track emissions and reduce waste
in their systems. Radio frequency identification
(RFID) sensors have already had a significant impact
on the industry. The next big challenge appears
to be reducing costs and reaching agreement over
standards and processes for managing the large
amounts of complex information that is generated.
MA Potential: Sensors, Monitoring and
Control Technologies
Companies providing efficiency technologies range
from those that provide the basic sensor technologies
to those that offer a more fully integrated solution.
Start-ups and mid-size companies tend to serve
specialist and new market niches, or focus on
technology. Large global conglomerates, which
are likely buyers in this space, include ABB,

28
Danaher, Emerson Electric, General Electric,
Honeywell, Invensys, Johnson Controls, Phillips,
Rockwell Automation, Schneider Electric, Siemens
and United Technologies.
Recognizing some of the broad trends and large
potential markets, venture capital investing into
sensors, monitoring and control technology
companies has been robust (Figure 21).
The main exit for these companies is most likely to
be through a trade-sale. We have already seen some
acquisition activity by the large conglomerates and
industrial manufacturing companies as a relatively
low cost, low risk way to expand and diversify their
product lines (Figure 22). However, many large
companies are also developing in-house capabilities
and technologies in this area which will compete
with the smaller firms directly.
For both large and small companies in this
industry, competition is around gaining market
share swiftly, and setting standards and protocols
in the process. According to William Lese of
Braemar Energy Ventures, companies in the energy
demand-response market, which is fundamentally
enabled by sensors, intelligent metering and
advanced control systems, need to scale up very
quickly so they can lock in customers and, by
doing so, become the standard in the industry.
To scale up quickly, they will need to access a
large pool of capital. If they can access the cash,
it could accelerate acquisitions and joint ventures
in the space.
As the sensors, monitoring and control industry
grows and becomes more sophisticated, we
expect it to segment further along market-lines.
MA will also be driven by the need to deliver
platform technologies to address specific vertical
applications, such as HVAC and trucking.
SomeofthelargercompaniessuchasHoneywell
are likely to develop a portfolio approach to the
different markets, and leverage their skill in one
market across to another. For example, in 2005
Honeywell acquired Tridium, a provider of a
software framework that integrates, manages
and controls diverse systems and devices,
such as sensors, in real time via the Internet.
Tridium’s primary traction was within the building
automation and energy services markets but
they had already begun gaining momentum for
their technology in alternative markets such as
industrial automation, convergence retail and
government defense. Honeywell recognized
the broad applicability of Tridium’s technology
across numerous business units.
Technology companies across the sensors,
monitoring and controls space will be acquired
to enhance the competitive advantage of systems
integrators. However, one question facing the
MA market in this sector remains unanswered.
Will industrial acquirers, who have not tradition-
ally paid high multiples in their acquisitions,
pay up for these high growth and sometimes
niche businesses?

29
Figure 22: Efficiency Technology, IPO and MA Transactions, 2005-2006
20
1
30
25
20
15
10
5
30
Industrial Process Monitoring
and Control
Environmental and
Energy Control
M A: Total 50
IPOs: Total 1
Figure 21: Efficiency Technology VC Investments, 2003-2006
300
250
200
150
100
50
Transportation
and Logistics
Environmental and
Energy Control
Industrial Process
Monitoring and Control
5
20
41
5
24
50
0 4
4
Note: Numbers
at top of columns
indicate the number
of deals for each
segment and stage.
Column height
indicates total
amount invested.
(in U.S. Millions)

30
energy storage technologies:
cheaper, faster, longer, cleaner
The proliferation of battery powered electronic
and biomedical devices, hybrid electric vehicles,
and advanced wireless sensors have fueled the need
for innovation in battery technologies. In addition,
the increase in investment in renewable energy
generation technologies, such as solar and wind,
which are intermittent by nature, and distributed
energy systems more broadly, has opened up new
markets and needs for back-up power generation
and energy storage technologies worldwide.
In many of these markets, the need for energy
storage is one of the key constraining factors
holding back the widespread adoption and use of
clean technologies. For example, one of the major
limitations to electric-powered transportation has
been the size and weight of the batteries needed to
store energy for free-roaming vehicles.
Aside from its enabling role for other cleantech
applications, there is also a need to develop cleaner
energy storage technologies. Several environmental
and safety problems have prompted the search
for denser, lighter, cleaner, longer-lasting and safer
battery and energy storage technology. The August
2006 recall of lithium-ion (Li-ion) batteries by
the U.S. Consumer Protection Commission due to
several overheating incidents has brought into sharp
focus the potential consumer hazards of some
batteries. Concerns over the life-cycle environmental
impacts of batteries are also stacking up, given
the total amount of batteries and toxic materials
now ending up in landfills worldwide. The partial
ban on cadmium by the European Commission in
December 2004 affects NiCd batteries in particular,
and is indicative of a broader worldwide regulatory
trend to phase out toxic metals from batteries.
As such, cleaner energy storage and battery
technologies are receiving increased attention by
investors and companies. One investor described
energy storage as, “not necessarily an easy space,
however it’s potentially very interesting and
lucrative.” (Anonymous)
Technology Overview
Energy storage technologies are used in a wide
variety of industries and products, from portable to
stationary applications, as seen in Figure 23.
Recent advances in energy storage technologies
for both portable and stationary applications are
striving to be cleaner, safer, faster, more durable,
cheaper and higher performance (Figure 24). Of
the energy storage technologies shown in Figure
23, some are already commercially available and
others further away but in an active RD and
prototyping phase. Appendix 6 lists companies
currently active in the energy storage market.
Trends and Drivers
The three energy storage application markets that
show the most potential for significant growth in
the near to midterm are high energy and power
density batteries for vehicles (e.g. hybrid electric
vehicles), energy storage for consumer and portable
electronics, and energy storage technologies for
renewable and distributed energy systems.
1. Energy Storage for Fuel-Efficient and
Hybrid Vehicles
Energy storage technologies are a crucial part of the
rapidly growing market for fuel-efficient vehicles,
including gasoline-electric hybrids, diesel-electric
hybrids, all electric and fuel cell vehicles. Cleaner,
more powerful and efficient battery technologies
can also improve the environmental profile of

31
Figure 23: Overview of Portable and Stationary Energy Storage Technology Applications
existing gasoline based vehicles and newer flex-fuel
(biofuel), diesel and natural gas powered vehicles.
Indeed, many believe that the world is on the
cusp of a major transition towards hybrid electric
vehicles. Analysts at AllianceBernstein project that
within the next decade, more than 80 percent
of all new cars and light trucks sold worldwide
will be hybrid (electric and gasoline or diesel).ix
Two forces driving this trend are fuel-efficiency
standards stemming from concern over energy
security and climate change and rapidly growing
consumer demand.
Of the components needed to make a hybrid vehicle,
the energy storage system (battery pack, control
unit and cooling system) is the most expensive.
It is estimated to be anywhere from 30 to
50 percent of the total cost of the hybrid system.
Portable Applications
Transportation Vehicles
Car batteries
Hybrid engines
Buses, trucks, military, scooters, Segways, trolleys, boats, recreational
(e.g. golf carts, buggies, etc.)
Consumer Products
Lighting
Entertainment/toys
Photographic equipment
Tools and appliances
Watches
Calculators
Medical equipment
Diving equipment
Computers and Communications
Personal communication devices
(e.g. cell and cordless phones, portable computers, PDAs, etc )
Industrial
Power tools
Industrial instruments
Cranes
Elevators
Portable power generators
Medical devices
Professional photographic
Lawn care equipment, etc
Stationary Applications
Renewable Energy Generation
Storage for off-grid solar, wind, tidal and biofuel/biomass energy generation
Back-up Power
Uninterruptible power supplies (UPS) for hospitals, Remote weather stations,
Manufacturing, Servers, etc.
Military Applications
Power supply for off-grid needs
Aerospace
Distributed Energy Systems
Large and small systems
Electric Utilities
Combined heat and power

32
Figure 24: Overview of Energy Storage Technologies
Primary Batteries (Single Use)
Current Technologies
Alkaline Manganese
Lithium
Nickel Zinc
Silver Oxide
More Emerging Technologies
Zinc-air
Super-premium Alkaline
Zinc-carbon Chloride
Secondary Batteries (Rechargeable)
Current Technologies
Lead Acid
Lithium-Ion/Polymer
Nickel Cadmium
Nickel Metal Hydride
Nickel Zinc
Alkaline Manganese
More Emerging Technologies
Next Generation Li-Ion
Valve-Regulated Lead Acid
Silicone
Enzyme Catalyzed
Nano-rechargeable Aluminum
Flow Batteries (Redox)
° Cerium-zinc
° Lead-flow
° Polysulfide Bromide
° Uranium Redox
° Vanadium Redox flow
Fuel Cells
Current Fuel Cell Technologies
Alkaline
Molten Carbonate
Phosphoric Acid
Polymer Electrolyte Membrane (PEM)
° Direct Methanol
° Direct Ethanol
More Emerging Fuel Cell technologies
Direct Borohydride (type of Alkaline)
Direct Carbon
Formic Acid
Microbial
Metal Hydride
Protonic Ceramic
Redox (Flow) Fuel Cell
Reformed Methanol
Regenerative (closed loop)
Ultra-Capacitors
Carbon Aerogel
Carbon Nanotubes
Porous Electrode Materials
Other Materials
Flywheels
Advances in:
Materials (e.g. carbon composite materials, Kevlar etc)
Bearings (e.g. magnetic)
Rotors
Controls
Vacuum Enclosures

33
Thus energy storage technologies have become an
important concern within vehicle manufacturers
as well as government labs, universities and
VC-backed entrepreneurial companies.
The new generation of cleaner energy storage
technologies serving the efficient-vehicle market
currently include rechargeable batteries nickel metal
hydride (NiMH) and, to a lesser extent, Li-ion and
fuel cells of different kinds. Most hybrid vehicles
today use NiMH battery technology. However,
hybrid vehicles are optimized to use only 20 to 25
percent of the energy stored by the NiMH battery in
order to extend the life of those batteries out 10 to 15
years for the life of the vehicle. This means that more
battery-units per vehicle are needed. RD efforts
have focused on increasing the power density of the
NiMH batteries while reducing weight and costs.
Going forward, alternative batteries with higher
densities have been sought. In particular, advanced
lithium batteries are expected to lower costs,
weight and space requirements further and improve
batteries’ durability, energy and power density.
Fuel cell technology development for vehicles is
generally considered to be further off, primarily due
to concerns over how to cost effectively and safely
supply hydrogen fuel.
2. Energy Storage for Portable Electronics
and Computers
For all battery technologies, small and mid-sized
manufacturers face tremendous competition from
large multinational corporations. There has already
been substantial consolidation, especially in the
primarybatterymarket.BriggsStratton,Energizer,
and Gillette’s Duracell subsidiary combined
controlled almost 40 percent of the portable power
supply market in 2004.x With minimal product
differentiation, price is a key competitive factor.
The large companies have achieved economies of
scale, control over distribution channels, a high
degree of brand recognition and manufacturing
capabilities resulting in high barriers to entry and
slim margins.
Rechargeable batteries currently account for only
10 percent by unit volume of all batteries sold (90
percent going to single use disposable batteries).
However, rechargeable batteries now account for
63 percent of industry revenue.xi In response
to this market structure and high revenue for
rechargeable batteries, entrepreneurial companies
with innovative battery technologies have tended
to favor niche and emerging markets such as
medical devices, power tools, micro batteries for
RFIDs and thin-film paper based batteries for
smart cards and the like.
“Industrial customers for batteries are more
likely to have specialized needs, such as micro
batteries for medical devices or monitoring
and sensing markets,” explains William Lese of
Braemar Energy Ventures.
Nonetheless, progress rolling out new tech-
nologies in the major markets has been slow.
Commercializing new battery technologies is
capital intensive, requiring new manufacturing
plants or equipment and a long-term commitment
to funding RD for a particular technology. New
entrants competing in these markets will have
to exhibit greater performance improvements
over current technologies, at the same or lower
price. Even if they achieve this, they still have
the problem of brand building, distribution and
adoption. Smaller players will either require a
generous supply of capital or may be at the
mercy of buyers when forced to sell instead of
continuing to fund.

34
Micro-fuel cells using methanol are considered one
of the most promising technologies to replace Li-ion
batteries for portable computers, cell phones and
other mobile electronics. However, the technology
faces significant hurdles before it is ready for
commercialization. Some of these hurdles include
concerns over the current inability for cells to
deliver short bursts of peak power, fuel distribution,
size, heat dissipation, the life of a cell and safety
concerns. Nonetheless, the promise is that these cells
can potentially provide 10 times the energy storage
capacity of a lithium battery, have quick recharge
times and a low environmental profile. Several
semiconductor and consumer electronics companies
(including Hitachi, Intel, LG, NEC, Panasonic,
Sanyo, Sony and Toshiba) are actively researching
micro-fuel cells and some are developing joint
ventures with start-ups in the space. As can be seen
in Figure 25, companies have received considerable
VC backing for micro-fuel cell development.
3. Energy Storage for Distributed and
Renewable Energy
The significant growth in renewable energy
installations such as wind and solar energy
generation, has prompted the need for cheaper
and cleaner energy storage technologies. Energy
storage is needed to ensure a reliable energy supply
for industry and residents accessing renewable
energy. While many energy customers are buying
and installing renewable energy in part because of
its reduced environmental footprint, the relative
cleanliness of the energy storage technology has
become important. For off-grid applications such as
back-up and remote power access or military uses,
the added benefits of a clean and efficient energy
storage system include reduced noise, emissions
and fuel costs.
The types of larger stationary energy storage
technologies gaining ground for such applications
are fuel cells, flywheels and other larger scale battery
technologies (such as flow batteries).
VC Investment in Energy Storage Technologies
Venture investments in the energy storage space
offer some insight into which technologies and
applications might experience significant growth.
Companies with advances in rechargeable batteries
dominated – from Li-Ion, Zinc-Air, NiMH, NiZn
and improvements in lead-acid batteries. Other
popular areas for VC investing are in expansion
stage fuel cell companies, and for less amounts in
total, micro-fuel cells.
MA Projections for Energy Storage
We believe few private companies in the sector
will be able to compete as standalone entities.
However, significant investment into these
companies has and will continue to lead to smaller,
cheaper, more powerful, efficient and cleaner
energy storage technologies which we anticipate
will be attractive targets for acquisition by large
incumbents wanting to hedge their technology
risk, leverage their existing infrastructure and
access new markets.
Fuel cell companies lead the sector from a total
investment standpoint. Despite investments
to date, there is still significant development
required to commercialize a number of these
technologies. When coupled with the fact that
the technology has not developed as hoped, in
part due to issues around access to fuel (primarily
hydrogen), we anticipate investor fatigue will lead
to some company shut downs or distressed sales
for intellectual property.
°
°

35
Figure 26: Energy Storage MA and IPOs, 2005-2006
Figure 25: Energy Storage VC Investments, 2003-2006
450
400
350
300
250
200
150
100
50
2
23
21
0
5
13
Thin-film
Batteries
2 2 1
Chargers and
Capacitators
1 1
5
Flywheels
7
22
40
Fuel
Cells
3
11
20
Micro-Fuel
Cells
Rechargeable
Batteries
Startup/Seed
Early Stage
Expansion
Note: Numbers
at top of columns
indicate the number
of deals for each
segment and stage.
Column height
indicates total
amount invested.
10
8
6
4
2
7
1 1
8
Fuel Cells –
PEM
Fuel Cells –
Other
Alkaline
Bateries
Lithium-Polymer
Batteries
Nickel Zinc
Batteries
Lithium-Ion
Batteries
3
1 1
M A: Total 13
IPOs: Total 9

36
Several large OEMs have internal development
efforts for more efficient, longer lasting batteries
for their portable consumer products. Some of
these OEMs are supplementing their internal
efforts by partnering with the private sector. We
believe this can be a good strategy for private
battery/micro-fuel cell companies to achieve
faster market adoption rates. The cautionary tale
and caveat here is whether or not these private
companies protect their intellectual property
(IP) in the process. These partnerships and joint
development efforts are typical as a first step in
an MA process which leads us to the conclusion
that large OEM players may be likely acquirers
of battery and micro-fuel cell companies.
In addition to the above trends, we believe the
energy storage market may be ripe for roll-ups
in the coming years. The economies of scale and
scope across different geographic regions and with
differing technologies would help smaller players
to gain market share and more quickly become a
meaningful player in the space.
°
°
water technologies
The water industry has in the last ten years
undergone large-scale privatizations and a period
of consolidation. It is also facing pressure to
become more efficient, cleaner, more affordable
and reliable.
Water Supply and Demand
Industrial development has put increased pressure
on the water supply by driving the need for
more water per capita as well as producing more
contaminants that often end up in the water system.
Regulations worldwide are increasing the stringency
of standards for water and wastewater quality.
Technological breakthroughs have focused on
improving information about water quality and
use, filtration technologies, water and wastewater
treatment devices, and water reuse technologies
and processes. Other trends worth noting are the
matching of quality of water to its intended use (e.g.
cleanwaterfordrinkingandgreywaterforgardensor
toilets), increasing demand-side efficiency measures
such as water metering, and a trend towards more
decentralized water systems (e.g. residential rain-
water collection and onsite water recycling).
The worldwide water market in 2005 was sized
at $365 billion, and the U.S. water industry
alone generated $107 billion in revenue in
2005.xii The Environmental Protection Agency’s
2006 “Drinking Water Infrastructure Needs
Survey and Assessment” called for the investment
of $277 billion over 20 years in drinking water
infrastructure rehabilitation and upgrade in the U.S.
Internationally, the aging, and sometimes outright
failing, water infrastructures need a major upgrade.
Furthermore, many developing regions do not have
a true water infrastructure, adding additional stress

37
to their economies and social systems. The largest
potential water market based on population is
China, where the infrastructure for drinking water
and wastewater delivery and treatment is still under
construction. The Chinese government plans to
spend $120 billion over the next few years to ensure
its citizens have access to clean, reliable supplies of
drinking water.xiii
Similar to the energy sector, there are large efficiency
gains to be had in better controlling water resources
and infrastructure.
From a supply point of view, the prospect of
a water crisis is possible in several countries
due to over-exploitation of groundwater
supplies, pollution of existing water sources and
crumbling or under-capacity of water distribution
infrastructure. Effects on the water system by
climate change could also be a wild card in the
supply profile of water resources.
Increased demand for water is due to international
population growth, rapid urbanization and the
migration of populations to some of the most
water-stressed regions on the planet. An estimated
1.1 billion people currently live without clean
drinking water.xiv Clean water is essential not
only for the health of consumers but also to
many industries’ processes and operations. In
fact, agriculture currently accounts for some
66 percent of fresh water used, followed by
industry at 20 percent, households at 10 percent
and evaporation from reservoirs is estimated at
four percent (Figure 27).
Water is expensive to trade internationally, so
localized technological solutions are key. The
problems afflicting the global water supply present
°
°
opportunities for those companies able to deliver
the necessary technology and solutions to meet
those challenges at an affordable price. For example,
precision drip irrigation substantially raises the
efficiency of water use for agriculture, given that
only 40 percent of water applied to crops is actually
used by the plants, most of it lost to evaporation.
Water Technology Investment and MA Trends
Watertech is a subsegment of the larger water
industry vertical. The watertech subsegment
is comprised of technology and equipment
manufacturers that serve several markets including
utilities providing drinking water and wastewater
services, industrial manufacturers, agriculture
producers and direct retail consumers (Figure 28).
It currently consists of the full range of companies,
from large to small, nimble to slow-moving and
everything in between. Appendix 7 lists companies
active in the water-tech market currently.
Recently, we have seen many non-traditional (non-
utility) companies and investors entering into the
water business. With the exception of desalinization,
these companies tend to focus on technologies rather
than facilities or infrastructure. VC investments
have recently increased into water technology
companies (Figure 29). Investors are focusing on
water treatment, filtration and purification of input
water; conservation and efficiency technologies such
as leak detection analytics; and technologies that
treat wastewater and enable its reuse. Investments
tend to be directed towards technologies such
as advanced filtration and treatment, efficient
pumps and valves, analytics and testing, meters and
instrumentation, process controls, and wastewater
treatment and re-use.

38
Figure 28: The Water Supply Chain
Source: Sustainable Asset Management, 2006 and SVB Alliant, 2007
Figure 27: Worldwide Fresh Water Use
Source: World Water Council, 2006
Industry 20%
Reservoir Evaporation 4%
Agricultural Production 66%
Households 10%
Pre-Treatment Process
Water
Pipes e.g. Cooling Flushing,
Processing,
Cleaning
Industrial
Treatments
Untreated
Water
Key
Input
Enabling
Technology
Primary
Distribution
Distribution Transformation Service
Waste Water
Treatment
Industrial Water Use
Irrigation Crops and
Livestock
Crop
Transport
Food
Processing
Food Sewers and
Treatment
Untreated
Water
Agricultural Water Use
Treatment
e.g. membranes
Drinking
Water
Pipes,
Bottles
Sanitary
Installations
Health and
Hygiene
Recycling,
Sewers, and
Treatment
Untreated
Water
Residential Water Use

39
Signature Deals in Water Technology MA
VC lore proclaims it is hard to exit a
water-tech company. However, this view has
changed recently. The water industry has
experienced some rearranging of ownership and
MA activity.
General Electric purchased Zenon for $690
million in March 2006, and Ionics for $656
million in November 2004.
U.S. Filter purchased of Memtec in 1997; U.S.
Filter was, in turn, purchased by Siemens in
2004 for $960 million.
Industrial chemical giants Dow and Dupont
are also increasing their stake in the water
treatment and filtration business. Dow recently
launched Dow Water Solutions, a $350 million
revenue business unit created to develop,
manufacture, and sell technologies addressing
the water market.
3M, Home Depot and ITT Corporation have
also been active water technology company
acquirers.
Later stage private equity investors have also
been very active in the water technology space.
For example, the U.S. Aqua Fund invested in
Culligan, Nalco, Utilities Inc., and Water Pik.
Acquisitions by large companies have begun to
create the scale needed for these technologies to
serve a larger, more international customer base.
Many larger conglomerates such as General Electric
are combining their expertise in water, energy and
industrial building to deliver total infrastructure
solutions to lesser-developed countries.
°
°
°
°
°
Going forward, we can expect further
MA activity in the water technology
industry. Below are some trends driving this:
Water technologies service large international
markets and need large companies for their
distribution capabilities and access. This may
require the smaller players to seek assistance from
larger players via MA or partnerships.
Applications are found in many markets and not
just utilities (i.e. most manufacturing facilities
require water). This is likely to expand the buyer
base for water technologies.
The conservative nature of the water market,
namely utilities, may result in longer times to adopt
new technologies. However, the deregulation of
water utilities and the rise of public and private
partnerships in the provision of water to citizens
are rapidly changing the landscape.
Emerging markets and developing countries
will continue to have a huge demand for water
technologies. Also water stressed regions such as
the Middle East are looking internationally for
technologies to provide efficiencies and solutions.
Companies need local expertise and capability to
access these markets and therefore may execute
joint partnerships or acquisitions to do so.
°
°
°
°

40
Figure 30: Water Technology MA and IPOs, 2005-2006
Figure 29: Water Technology VC Investments, 2003-2006
30
25
20
15
10
5
Wastewater Treament Re-useConservation EfficiencyTreatment, Filtration, Purification
MA: Total 54
IPOs: Total 326
2
17
1
11
140
120
100
80
60
40
20
Wastewater Treament Re-useConservation EfficiencyTreatment, Filtration, Purification
Startup/Seed
Early Stage
Expansion
11
22
21
4
5
13
5
9
2
Note: Numbers
at top of columns
indicate the number
of deals for each
segment and stage.
Column height
indicates total
amount invested.

41
Clearly there is opportunity in cleantech, as many
investors and companies have realized, but what
about the risk? In addition to company specific
risk associated with investing in early stage
technology companies, each cleantech segment
will have its own subset of risk factors. Below
are some of the risks that are somewhat unique
to cleantech as a whole but common across the
different cleantech segments.
Market Risks
One frequently mentioned concern for cleantech
is the slow rate of market utilization and adoption.
Cleantech companies frequently try to sell their
products upstream against competing, deeply
entrenched incumbents and behaviors. Gina Domanig
of Emerald Technology Ventures gives some caution,
“Just because everyone is rushing to invest, doesn’t
mean buyers (of the products) are rushing to buy.”
Regulatory Risks
Lack of consistent regulation worldwide on
environmental externalities has been a persistent
problem for cleantech and hence caused investor
trepidation. Moreover, various incentive programs
to support particular clean technologies have
come and gone, and have affected both supply and
demand for technologies serving these markets. In
the U.S., clean energy industry associations have
been lobbying federal and state governments to
provide not just regulatory support, but longer-
term and reliable regulatory support to enable
the sustainable growth of cleantech industries and
mitigate regulatory risk. Although most VCs are
averse to relying on regulation for the success of
their investment, regulation has historically been
necessary for energy-related industries to grow in
the face of strong incumbents.
Financing Risks
Despite the recent influx of capital into cleantech,
there is still considerable concern about funding
financing gaps since many cleantech companies are
substantially more capital intensive than traditional
technology companies.
Early Stage: Much of the attention has fallen
on energy-related investments, leaving certain
segments, such as green building, or crossover
segments, such as industrial biotech, to receive
minimal incubation or understanding from
venture capitalists.
Later Stage: Investors will need to gain additional
comfort to facilitate growth. Project finance,
private equity and other sources of debt will
be needed to bring many of these technologies
to scale. Some specialty financing facilities have
emerged to serve these needs and government
support in the form of loan guarantees, such as
those from Export-Import Bank of the U.S., and
production tax credits have also fostered growth.
Overvaluation Risks
We believe there have been examples of a valuation
bubble in certain areas within cleantech due
to investor demand for cleantech deals, media
coverage and general industry hype. Already there
have been some high stock prices and private
company valuations, especially in the solar and
biofuels markets. Some of the valuations have
been adjusted by the market, however many
valuations remain extremely high based on their
near-term financial projections. The concern is
that with a rush of new money into the space,
some companies may get funded that perhaps
shouldn’t or may be overvalued.
°
°
Risks and Reality Checks of Cleantech Investing

42
Exit Timing Risks
One of the myths often encountered is that there
is a longer time to exit for investors in cleantech
companies, and that more patient capital might
be needed. Most VCs we spoke with indicated
their cleantech investments are not expected to
have different exit timings than other portfolio
companies. In fact, exit timing factors into the
selection criteria for cleantech investments. The
fact that cleantech applications cross multiple
disciplines and multiple sectors may help to diversify
some exit timing risks within a given portfolio.
“It’s not all gold out there, and there are
a lot of traps. As an investment sector,
cleantech provides some great money making
opportunities but there are also areas which
may be considered overheated and could lead
to disappointment.”
—Henrik Olsen, Environmental Technologies Fund

43
Cleantech is in the limelight now, however there
will be a fair amount of volatility as it finds its
feet in mainstream investment markets. The ebb
and flow of cleantech investing going forward will
be determined in part by larger investment cycles
in venture and public markets, general economic
conditions and, perhaps fundamentally, by any
large shifts in government policy. The combined
muscle of venture capital, hedge funds and private
equity will put pressure on politicians to shift
their agendas to environmental issues in both
Washington D.C. and the European Union. The
current situation implies more volatility and more
risk, but also more opportunity.
While not every cleantech segment will experience
the same rate of growth, we expect more MA
and growth in the segments which we chose to
highlight: solar; water technologies; energy storage;
and efficiency technologies. We identified two main
avenuesforMA,largeconglomeratesandindustrial
companies making cleantech acquisitions to access
new markets or complement existing businesses, and
existing cleantech companies making consolidation
plays. Private equity investors are likely to play
an increasingly important role, especially in clean
energy markets. We also expect some new entrants,
perhaps migrating out of other technology segments,
as demand for cleantech products and services
increases worldwide. In the near term, the current
focus will continue to be on investment, but it will
eventually transition to MA.
With acquirers setting certain criteria for what
they would buy, will there be enough of the
right type of cleantech companies to fit these
parameters? We may see more large companies
making more exceptions to their stated policies
as competition heats up. For large industrial
companies to maintain their positions, they will
need to adopt progressive technologies, perhaps
out of their historic comfort zones, in order to
maintain their competitive advantage. Often, it
may be quicker and more valuable to buy these
technologies rather than build them.
Just how long the cleantech moniker can capture the
breadth of the technological innovation is less clear.
It has the potential to split into larger cleantech
categories of energy, water and materials. But does it
really matter if it’s called cleantech or not? The value
in the term cleantech has come from the attention it
has drawn to a vibrant and fast growing economic
force. Investment and eventually exit opportunities
will abound due to the rampant rise of technologies
which more efficiently and cost effectively improve
our net impact on the environment.
Concluding Remarks: Cleantech Spreads its Wings

44
SVB Alliant is an investment banking firm providing
MA and private capital advisory services to
technology and life science companies. SVB Alliant’s
expertise spans the technology landscape, with
deep subject-matter and execution experience in
semiconductors, communications, storage, security,
networking, peripherals and capital equipment, the
Internet, software and services and life sciences.
The firm has offices in Palo Alto, California and
Boston, and an affiliate in London. SVB Alliant
is a member of global financial services firm SVB
Financial Group, with SVB Silicon Valley Bank,
SVB Analytics, SVB Capital, SVB Global and SVB
Private Client Services. Additional information is
available at www.svballiant.com.
About SVB Alliant
If you would like more information on the
cleantech industry, contact:
Investment Banking
Melody Jones
SVB Alliant
650 330 3076
mjones@svballiant.com
Commercial Banking
Matt Maloney
SVB Silicon Valley Bank
650 320 1104
mmaloney@svb.com
°
°
Contact
Information

Cleantech Report_2007

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (17)

En vedette

En vedette (20)

Similaire à Cleantech Report_2007

Similaire à Cleantech Report_2007 (20)

Cleantech Report_2007