21Ventures set to wait for higher valuations

JERUSALEM Wed Jul 22, 2009 8:45am EDT

Traders work on the floor of the New York Stock Exchange, April 24, 2009. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange, April 24, 2009.

Credit: Reuters/Brendan McDermid

JERUSALEM (Reuters) - The head of a $300 million Israeli-U.S. clean tech-focused venture capital fund said on Wednesday he does not plan on entertaining offers for acquisitions of portfolio companies for another two years.

"The economy is not going to recover fast enough and prices are too low," said David Anthony, managing partner of 21Ventures. "I will feed the companies that can survive and kill the companies that I don't think can make it in two years.

"I am now looking for new companies that in three to five years will be in place when there is a stronger economy," he said in an interview with Reuters.

Anthony founded 21Ventures in 2003 as a combination of a venture capital fund and incubator for start-ups.

He said his main goal is to sell his companies to larger ones that want to acquire proven technology.

Many large firms have taken advantage of a global environment where public offerings are non-existent and VC funds do not have the cash to fund companies. So, many start-ups are being bought at very low prices.

"We changed our strategy to making our companies cash flow positive as quickly as possible," Anthony said, adding that 25 percent of his portfolio are cash flow positive with a number of others close. "We feel we can hold on to them and sell them in two years if there is a turnaround (in the economy)."

21Ventures solely funds companies at the seed level in areas of renewable energy, solar and wind power, water clean-up, air pollution and longer-lasting batteries.

Investments have amounted to $300 million in 25 companies and Anthony said the fund plans to invest another $25 million in the remainder of 2009 and up to $40 million next year.

"The industry has gotten very conservative the past 12 months and that leaves a big gap in the marketplace," Anthony said, citing a 50 percent drop in VC funding this year. "We feel we have capital to invest and we continue to look for new opportunities in Israel and the United States."

"IMPRACTICAL AMERICANS"

Anthony said the biggest opportunity to ultimately make money is in clean tech, which he believes is underinvested and will be the biggest growth area the next two decades.

"What we look for are industries that have not been replaced by technologies in the past 10, 20, 30, 40 years," he said.

For instance, Americans are very impractical in living in large houses and driving inefficient cars and trucks, he said.

Anthony himself is American and believes the country's impracticality will hurt as energy costs rise and the water supply diminishes.

"I am trying to take advantage of the opportunity," he said, predicting oil prices will likely reach $200 a barrel once the economy recovers.

At the same time, emerging markets like Brazil, Russia, China and India are big growth markets as more of their populations enter the middle class and need cleaner water and more efficient energy sources.

Of the 25 portfolio companies, Anthony hopes for at least five to 10 "big hits." Among those he feels strongly about are 3G Solar, developer of solar energy using dye-sensitized solar cell technology, and ETV Motors, which is developing a technology for electrical propulsion in hybrid cars.

As for the fund itself, Anthony said 21Ventures' model is different from other VC funds since investors do not invest in the fund but rather in specific companies. And, companies do not get increased funding until they meet certain milestones.

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