VC group's Heesen says clean tech still hot

-- Deborah Cohen covers small business for Reuters.com. She can be reached at smallbusinessbigissues@yahoo.com --

By Deborah L. Cohen

Total investments in clean technology - including wind, solar, bio-fuels and a host of related technologies - totaled $4.09 billion through the end of 2008, compared to just $1.44 billion in 2006, according to the National Venture Capital Association (NVCA). That's still just a fraction of the overall $28.2 billion in venture capital investments but the area is steadily gaining momentum.

In a recent interview with Reuters.com, Mark G. Heesen, president of the NVCA, the leading trade association for venture capitalists in the United States, representing the interests of more than 450 member firms, discussed the growing interest in clean technology and how this fast-growing sector will shape the future of early-stage investing.

Despite a fall-off in interest in the sector in the first quarter of 2009, Heesen expects clean-tech to eclipse the traditional VC mainstays such as information technology and medical devices, within five years, helped in part by the federal government's commitment to reduce greenhouse gas emissions and dependence on foreign oil.

Here are excerpts from the interview.

Reuters.com: Clean tech investing still trails information technology and life sciences, among other sectors. What's the outlook like?

Heesen: Certainly the first quarter of this year you saw a dramatic fall-off. One quarter does not make a trend. Five years ago about 2 percent of (venture capital) money was going to clean tech. Today it's about 15 percent. I honestly believe in the not-too-distant future this sector will be the largest sector for venture investment. It's hot. There's no question about that and there will be lots of money lost in this area, but from a long-term perspective, this is what I call quintessential venture capital. It's an area that's crying out for fundamental change, and, as we call it, for destructive technologies that totally upset the existing structure.

Reuters.com: Overall, how would you define what's happening in clean tech?

Heesen: From a venture capital perspective, what clean tech represents is a convergence of a lot of other technologies that we've seen in the past. This is an area where you're really seeing a convergence of life sciences, IT, communications, all of these different sectors kind of melding together. The energy area is where we seem to be focused on.

Reuters.com: What areas are covered under the clean tech umbrella?

Heesen: We're also talking about what we call brown tech and that is trying to make the existing areas of energy consumption more efficient. If we're going to dig a well, it's getting 100 percent of the oil out of that well, not just 82 percent. If we're going to burn coal, we want a more efficient, cleaner way of burning that coal. It's at least trying to upset the existing status quo when it comes to energy production and consumption. The other misconception out there is that all of these projects are huge, huge projects - wind farms and solar farms. But a lot of what we do today is very simple: it's things like better building materials, better lighting, better carpeting, better paint, all of these kind of mundane things that at the end of the day can actually save quite a bit of money. Water purification is another area. All of these areas are not as grandiose as some of these major projects, but they're a very integral part of what we view as changing the existing system.

Reuters.com: How does clean tech fit with broader trends?

Heesen: You have governments around the world, now including the United States, which understand its importance from an energy policy perspective, from an economic perspective and from a national security perspective. Governments … are willing to subsidize some of this change. Consumers around the world, particularly in Europe, are willing to pay, even pay a little more in this sector, because they understand global warming, and that this isn't just a fraud perpetrated on the marketplace, that global warming is really something that we need to be concerned about. I think that in five years this will be the largest sector in venture inventing.

Reuters.com: How are venture capital firms adjusting to prepare for these investments?

Heesen: I see venture capitalists and venture firms bringing on experts in this area, as well as becoming much smarter in this area in general. I think people understand that there's a societal good that can come out of this but there's also money that can be made here. And you're also seeing our investors, people that invest in us, colleges and university pension funds, willing to see venture capitalists invest in this sector. I actually think that's a turnaround as well. They were very pensive a few years ago. I think they understand that this is an area that is ripe for investing.