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Venture capital investor sees profit in the environment

27/10/2010

  • Experts interviews
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The European Environmental Technologies Fund is a venture capital investor in major growth companies making a big environmental impact, as managing partner Henrik Olsén explains.

London-based ETF was established by a group of like-minded investment and business specialists with backgrounds in industry, engineering and science. They saw that a combination of a strong environmental and economic interests provided an opportunity to deploy capital in a sensible way to make a big impact. ETF has attracted backing from some of the world's leading institutional investors, including the European Investment Fund.

In addition to the day-to-day management, Henrik Olsén focuses on new investments and represents ETF on the boards of several of the firm’s portfolio companies. Prior to founding ETF, he spent 13 years at GE Equity. He is also a member of the European Advisory Board of the Cleantech Venture Network.

What is the background to the ETF approach?

There is a strong correlation between a big environmental impact and successful and sustainable businesses. It was that simple notion that brought us together. And we were fortunate to have support from among others the European Investment Fund – one of the earliest backers of our fund. Other backers include pension funds and institutional investors. We launched the fund in 2007 and have £110 million (€125 million) under management for investing in growth companies across Europe.

What companies do you target?

Most people associate environmental companies with waste and energy. In fact the big environmental impact is at multiple levels in multiple industries. Cleantech is not an industry sector as such but really a collection of lots of different industries where everybody is increasingly forced to use or produce more with less. Our investment strategy is to focus on those industries where the environmental impact is not obvious or evident at first glance but, when you look at it, it has huge potential impact on the environment by using new technologies, new services and how you go about doing business.

Where do you see your key achievements?

We are revolutionising areas such as the paper industry, metal refining and timber production. For example, Swedish company Chemrec is starting production of BioDME from the waste black liquor in the paper industry – about half the output when you chop and cook up a tree. Diesel-replacement BioDME is one of the cleanest fuels you can use. The paper industry is currently a low-margin, quite wasteful industry. Turning this waste into a usable product means that instead of manufacturing low-margin paper, pulp mills start to become biorefineries producing chemical fuels out of trees, a renewable source.

UK company Metalysis is another example, using far less energy and a lot less nasty chemicals when producing metals from metal oxides. The company is scaling up the FFC process – an electrochemical method for turning metal oxides into metals or alloys – for the production of titanium, tantalum and other high value metals. Benefits include a lower capital intensity, reduced operating costs and a smaller environmental footprint.

Kebony in Norway is transforming the wood industry and the need for tropical hardwoods. It takes fast-growing softwood and transforms it using furyl alcohol produced from biowaste into a product which looks and behaves exactly like a tropical hardwood. This will stop people chopping down rain forests and slow-growing trees such as teak.

Do you see cleantech investment as a major economic opportunity?

ETF is a real economic venture though underlined by a strong will to make a change in a lot of industries. We have a strong conviction that to make big impacts fast you have to back businesses and transform them. You cannot just do this in a philanthropic way, it needs to be profitable and this is a great way of making it sustainable.

We are currently half way through our first fund. But we intend to raise more funds and invest in more companies. We will continue to do this in a big way. And we need to grow our existing companies and turn them into successful businesses. We are only a couple of years into this and it takes time to build successful companies. The average life of our portfolio at the moment is about a year. So it is a bit early to talk about financial returns. Ultimately the companies will speak for themselves. We are very hopeful for the future. Moreover, it is institutional investors that have invested into our funds and they are looking for two objectives: environmental impact and financial return – and they believe equally that you have to be profitable to have an impact.

More information

Related information on the EcoAP Website

Cleantech investment growing

According to the European Private Equity and Venture Capital Association (EVCA), nearly €6.7 billion of private equity capital has been invested in more than 1 200 European cleantech companies since 2007. Cleantech investment increased from less than 3% of the total European private equity market in 2007 to almost 6% in 2008 and 2009. Preliminary data for the first half of 2010 showed a fairly stable cleantech investment market with €508 million invested in 166 companies. Venture-backed companies accounted for 84% of the total number of private equity backed cleantech companies financed in the first six months of 2010, up from 74% for the whole of 2009.

More information:

‘Cleantech private equity: state of the market’; EVCA Barometer September 2010:
http://www.evca.eu/ [255 KB]