British serial entrepreneur Doug Richards examines why Europe, though it seems passionately committed to addressing climate change, lags the United States badly in the amount of venture capital money flowing into clean-tech companies.
According to Cleantech Venture Network, Europe has trailed the US in cleantech VC investment since records began and by an increasing margin each year. In Q3 2006, over $900m was invested in US cleantech companies compared to just under $150m in their European counterparts.
This top down view is consistent with the anecdotal evidence of where the action is. In almost every sector of cleantech, the key start-up and venture backed companies are in the US. In hybrid or electric vehicle development Tesla Motors, Phoenix Motorcars and Venture Vehicles lead the way in the US. It is hard to find companies at such an advanced stage in Europe. In battery technology, the picture is dominated by Massachusetts based A123 Systems. There is no major European player in this sector, although there are a couple of interesting developers of ‘paper battery’ technologies in Finland and Israel. In LED lighting, one of the most promising clean technologies in the energy efficiency space, there is again a dearth of European talent. Group IV Semiconductor of Canada is a leading player whereas major European hope ACOL is believed to have ceased trading in 2006.
The only cleantech sector where Europe is on a par with the US in terms of grass roots innovation is in solar where Apax-backed Q Cells has become a global player with a market capitalisation of billions of Euros.
Why is Europe lagging so badly in this area? Richards says its a symptom of a larger problem:
Ultimately there can be only one major reason for the lower amount of venture capital invested in Europe compared to the US, and that is a lack of investment opportunities. The vibrancy of venture capital in Israel and the explosion of investments in China show that money flows where the opportunities are, even if that is outside the US.
Richards, chairman of the UK investment research firm Library House, says Europe is focused on the wrong trigger.
Our analyses in several reports demonstrate the US and Israel have both been successful in stimulating innovation because they have focused on increasing the demand for venture capital (i.e. the number of investable propositions). In contrast, Europe has been obsessed by the idea that the supply of venture capital is the problem. The result is that while Israel has its incubator scheme and the US has its Small Business Innovation Research (SBIR) programme, both designed to fund proof of concept projects, Europe has promoted public sector equity investment. In our view, the European approach will be unsuccessful unless accompanied by a meaningful proof of concept scheme like SBIR.
Interesting.
