Artesian Venture Partners has launched the $20 million Clean Energy Seed Fund, the first of its kind in Australia, with a $10 million commitment from the $1 billion Clean Energy Innovation Fund.
The fund is a leg-up to entrepreneurs so more of them may make it through to attract Clean Energy Finance Corporation investment at later stage.
“To have a good pipeline of late-stage opportunities you need a really, really, really big pipeline of early-stage opportunities,” says Artesian Venture Partners managing partner Jeremy Colless.
“There are a lot of researchers out there doing deep science research that may take a lot of time to become commercial. We’re looking at start-ups that are commercialising ideas.”
The fund’s management team will work with yet-to-be-announced “accelerators and incubators” focused on clean energy, Colless says, and keep an eye out for opportunities amid a network of like-minded investors.
“We effectively act as a pre-screening fund that allows [investors] to take larger, later-stage investments in de-risked opportunities.”
As the cost of research has dropped the number of start-ups has grown, Colless told EcoGeneration. The challenge is to sift out “un-investable” companies.
“We’re a co-investment fund, so part of our role is to encourage [others] to invest alongside us.”
Seed-stage equity investing is very risky. There may be no completed product, let alone revenue or customers. Any notion of due diligence is severely constrained.
Early-stage ventures are “massively asymmetrically skewed”, Colless says, and the majority of returns will come from a minority of start-ups.
“First of all we will pre-screen out the 90% we think are un-investable, using our partners; we will then invest a small amount in the top 10% in as many start-ups as we can; then we concentrate that portfolio at the angel stage by only investing in start-ups in our portfolio that are able to [attract] three external investors.”
The clean energy spectrum takes in all sorts of resources and technology, including metering control, solar, green building and biomaterials, transport technologies, carbon, wave energy, geothermal, wind, biofuels, storage, wind, water, waste. “It’s a very broad base and there are lots of start-ups in that,” Colless says.
“You need hundreds and hundreds of start-ups down the bottom to get a good 10-and-plus companies at the top. Our mission is to broaden the base.”
Other than profiting investors, the fund will be deemed to be a success if people with good ideas are matched with people who are good at commercialising them. “My belief is that good entrepreneurs always get funded.”
Sometimes the early bird gets the worm, but often it is the second mouse who gets the cheese, Colless says, where a fast follower learns from the mistakes of the first or is better funded. “Ideas are very important but execution is everything.”
The Clean Energy Seed Fund will invest in between 30 and 50 start-ups over its 4-to-5-year investment period.
The $10 million commitment is the first project to be financed through the new Clean Energy Innovation Fund, which draws on finance and skills from the Clean Energy Finance Corporation and the Australian Renewable Energy Agency.