Clean energy: An emerging long-term investment theme

Sylvia Chan, managing partner and co-founder of Entropy Ventures, talks to FinanceAsia about successful fundraising in challenging times and why she is avoiding biofuels.

What is Entropy Ventures?
Entropy Ventures is a specialist fund management house focused on Asian clean energy founded by Fergie May and myself. Entropy's Amadeus Asian Clean Energy Fund was launched in mid-2008 to focus on providing growth and expansion capital to clean energy-related companies and projects in the Asia Pacific region.

The fund is targeted at $75 million and achieved its second close at $35 million in early August.

The Amadeus Asia Clean Energy Fund has made two investments so far, what have they been in?
The fund's first investment was in a fuel cell/green battery company that is applying its technology to the consumer, industrials and aircraft sectors. The second investment was in a concentrated solar power company that is one of the first to build non-PV [photovoltaic] solar projects in China. One of the products of our first investee company won the "eleven coolest products on the planet" among other awards. A fuel-cell car that was launched in London by Riversimple in June this year also used our company's technology.

As for our second investee company, their technology makes it possible to have solar-generated electricity 24/7 and not just when the sun is shining; the company built a demonstration project in Tianjin earlier this year and is planning its first commercial project.

What are you looking for in a company when you make an investment?
First, we only really go for companies that address a sizeable market. Second, we always need to see a sustainable competitive edge. I always say that there are three sources of competitive strength: the technology, the customer equation and operational excellence, and we try to find companies that have more than one of these. An equally important thing we look for are good management teams -- and on top of that, we actively seek companies whose existing shareholders think like us.

Are there sectors within clean energy that you would avoid?
Yes, for some time now we have avoided first-generation biofuels -- in other words, biofuels that compete with food -- as well as solar PV, which is too commoditised for us. Biofuels will grow, but biofuels whose input fuel competes with food is problematic, not just because of the political implications of it but also because of input price inflation and therefore difficult profitability. 

You've been hiring advisers; what is the background of your team?
Our board of advisers is a mix of investment professionals with great track records, clean energy experts, including the top policymaker in clean energy in China, and a solar expert with deep regional experiences. The cleantech experts on our board of advisers help by bringing us their views on the sector and policy. The very experienced operational and investment professionals on our board make suggestions on how we can run our business most effectively -- both our fund and our portfolio companies.

As you mentioned, the second round of fundraising for the Amadeus Clean Energy Fund raised a total of $35 million. Were you pleased with that result?
Given the current financial market conditions, we are pleased with the results of our fundraising process and the introduction of two new Swiss institutional investors to Entropy Ventures.

Our success in fundraising during these challenging times can be explained by the focus and the results we delivered. Asian clean energy is an emerging long-term investment theme and Entropy Ventures is one of a small handful of firms on the ground in Asia with the knowledge, dedication and commitment in identifying the best investments in the clean-energy sector and the team to execute on it.

How do you intend to monetise the investments?
Exit opportunities for our investments are a mix of initial public offerings and strategic sales. The IPO market in Asia will recover sooner than the rest of the world, and clean energy is one of the top themes. As for strategic sales, we see in addition to the conglomerates and utilities who are potential buyers, a new emerging set of buyers. These are the domestic or regional Asian renewable energy companies, some of whom are quite large and will become an important group of participants in the M&A game. In practical terms, we would not invest in a company unless we see both possibilities.

What sectors do you think are perfect to invest in at the moment?
Almost all sectors in Asian clean energy are growing rapidly, though the risk profile differs. In terms of sectors, at the moment we are particularly interested in energy efficiency opportunities.

This interview first appeared in the October issue of FinanceAsia magazine.

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