Green firms must follow the money

Engineering and finance must work together for the UK to clean up from the boom in environmental technology, writes Stephen Mahon.

The global market for environmental technology and industries will be worth more than £360bn by 2010.

It is a sector based on real drivers, rather than dotcom hype, and should offer opportunities across all industrial sectors.

How can we make sure that UK companies capitalise on the growth in environmental markets? The most obvious answer lies in marrying our engineering heritage with our current strength in financial services.

While there has been a relative decline in our engineering skills base in the past 20 years or so, there has been a concurrent rise in the financial services sector. Engineers need to be alert to and aware of the opportunities available from the financial world, and vice versa.

However, before approaching any potential investors, companies need to decide what sort of financing is best for them, depending on the stage and trajectory of their growth, and their own sense of ambition. Smaller, start-up firms could well benefit from the support provided by angel investors, or even simply from gaining customers that place large, regular orders for their products.

For others, the venture capital arm of the private equity industry may be a more viable route. The notoriously secretive private equity industry has attracted some poor press recently but for small technology companies looking to build a fast-growing business, it can provide the lifeline they need.

Whichever finance route companies take, they should be looking for finance partners that understand their goals and the markets in which they operate, and that can help manage growth in the best interests of both parties. They should also be aware of what it is that investors are looking for.

At Low Carbon Accelerator, we are ideally looking for companies that have cracked their technologies and are looking to scale up production and sales to grow their businesses.

Just as importantly, we look for solid and reliable management teams that can clearly articulate the markets in which they operate and have identified the routes to that market. Many people have great ideas or great technologies. But without a clear route to market and a clear proposition for every step of the supply chain, the chances of success will be slim.

The only viable technologies for investment are those designed to solve problems in existing or fast-emerging marketplaces with strong management teams to get them there. A good example is the Austrian company, EnergyCabin, which was created by a consortium of technology suppliers listening to customer demand, seeing a gap in the market and designing a product to fit it. It is now enjoying roaring sales across Europe.

Beyond that, we would ask some other basic questions of a company, such as: how can you defend against others coming into the market?
What are your IP rights? What is your branding strategy? Is this just a “me-too” technology, or is it genuinely disruptive?

If the management team can answer all of these questions and knows where it is going, then we can think about investing.

It is not all one-way traffic though. Low Carbon Accelerator brings a wealth of experience to the companies we invest in and we take an active role in helping them develop.

One of our early investments was in Proven Energy, a manufacturer of small-scale wind turbines. This company had been going for about 15 years. It had grown slowly and steadily over that time and the management had built a solid, reliable business, much like its own products.

However, when demand for small-scale turbines boomed, the market came to Proven all too quickly. It had such massive orders, it had trouble meeting them all.

With our investment, we have changed shift patterns to increase productivity and helped Proven develop its manufacturing base, creating local jobs in the process. We have also helped it find offshore partners to exploit the global demand for its products and used our extensive advisory network to strengthen its management and sales teams.

Our investments in Proven and Energy Cabin are helping to boost growth, sales and profits. But companies should be aware that results like these do not come immediately.

Investment helps growth in the future but, in the short term, it can slow you down as management time is taken from the core business and spent on recruiting the right staff, planning new plant and spending on capital outlay.

Any serious investment will also be linked to a series of performance milestones the company will have to pass to access more capital.

Dr Stephen Mahon is chief investment officer, Low Carbon Accelerator