Venture Capital in the Energy Industry
Source: Reuters (9/16/09)
". . .industry experts are starting to see more and more investment activity from private sources."
Venture investing in energy-based technologies and projects began about seven years ago. Unlike government financing, which focuses on developing technologies for eventual application, venture dollars are invested for purposes of financial return. Venture capital is not R&D funding; it is really business expansion capital.
Since the 1960s, venture capitalists have invested in young, rapidly growing companies through purchase of equity securities to help develop new products and services. Venture capitalists often take high risks in anticipation of high rewards.
As deregulation and energy industry restructuring have opened up prospects for high-growth technology companies in the utility industry, private partnerships and closely held corporations funded by other corporations, pension funds, endowment funds, foundations and other investors have begun establish funds focused exclusively on technology companies servicing the utility industry. Today, a small number of such firms devote themselves solely to energy investments.
Utility companies also see the opportunities and recognize the imperatives. Facing competition, tighter margins and lower revenues in their traditional businesses, they must now find new ways to raise income and must look to new technologies to become more efficient. Many conventional utility companies have set up venture arms to finance high-growth companies, such as Internet exchanges for oil, gas and power; utility bill presentment and consolidation; and other business-to-business e-commerce services. Besides the Internet, many dollars are being poured into companies developing alternative energy sources, particularly fuel cells and other types of distributed generation.
Compared to investment in the Internet, VC investment in energy technologies is modest. However, in the past five years, a noticeable surge in venture funding has occurred.