This will make it happen!... will it?

I was listening to the radio and they were talking about a controversial law in Norway that mandates all companies to have at least 40% women in their executive board. Then I realized this could be the solution to better legislation for a green world.

If you have read my past entries you would have noticed that I am for free market and against too much regulation. Well, this simple law they introduced in Norway has accomplished what many other laws in other countries have failed to do. It has given women equal rights in the workplace. Whereas you are pro or against women's equal rights, you would have to acknowledge that implementing a single law to modify a trend as strong as that is remarkable.

The key element of this law (and what I think is applicable to greentech legislation) is that it modifies only the ultimate consequence of a desired trend, leaving the process to sort itself out. In other words, the law only regulates percentage of women in executive boards, the law forces companies to create their own process to groom women into the board room and to ensure that 40% of their employees that will be eligible for board positions are women. The law does not bother with employment or compensation factors.

If we translate this type of legislation into greentech we may start thinking about the ultimate consequence of living in harmony with our environment. Then we may suggest the following legislation to be applied:

• All companies and all households should become progressively carbon neutral every year until reaching 100% neutral by 2020.
• Water recycling should have a similar goal. 75% recycled water usage by 2020.

Then we should start talking about the consequences of non-compliance.

What if the company or the individual does not comply? Then we shall be as drastic as the Norwegians: they shut down the company. We may want to say: "pay us for the cost and installation of the best technology available, plus a penalty and we will install it for you"

What do you think? Will this work? Will it create the mindset to have a greener world? Will it promote the right technologies to the consumers? Intriguing questions!

Until next week, SHALOM!

An Ideal Greentech Portfolio - Part II

Following last week's post (An Ideal Greentech Portfolio - Part I), we will continue to explore the basis for an Ideal Greentech Investment Portfolio.

Last week we mentioned three criteria to ensure a balanced portfolio: Technological innovation, Business maturity and Market. What now?

First of all, let’s talk about dollar amount of investment. It is always preferable to be either a strong investor (owning substantial equity and voting rights) or to be in good company (i.e. follow the big investors). The saying: "money attracts money" is very applicable in this kind of investments, if investors start joining in a particular technology; then results are bound to improve.

By now we have taken a holistic approach to our portfolio. We know we need to look into diverse enough opportunities. We need to have a money strategy. We should have diverse stages of maturity in our companies. Now, let’s assume we are face to face with the CEO of one of our investment targets. What are the things we should look into?

First of all we need to understand the product. What is it for? How does it work? For this step it would be wise to freshen up on basic physics and chemistry knowledge (mostly in thermodynamics principles). Many companies out there are offering the "perpetual motion" machine. Be aware of false promises and the pot of gold at the end of the rainbow.

Next, we need to understand the Competitive Advantage:

(a) Is the product competitive? What is the advantage of this technology? Who would be interested in this product and why? What are the potential savings for end users?

(b) Are there barriers to entry for competitors? What is the cost of production? How complex is the technology to produce? How difficult is it to imitate? Are there any bigger players that may become our competitor?

(c) How does the product fit within the Green spectrum? Is it a technology that is ready for the public? Do we need to wait for further advancements in a specific field to have a market? Is this product an application for the short term or for the long run?

Finally, and certainly not of least importance we need to asses if the company has Strong Management. When you are seating at the table with any member of this company, do they know the basic numbers up and down? Are they well organized? Do they have a positive attitude? Are they open to your questions? Do they seem too enamored with their product to take criticism?

It is important to have “the gut feeling” for the company and for their product. If you feel the product is not good enough, but the management gives you a “good vibe”, then perhaps you should go for it. I always refer to the example of a company in Silicon Valley that set up with a weak product, but their attitude was “we are here to succeed”. They ended up becoming a great success with a different product (I believe it was Hotmail)

I know there are several books out there that talk about investment strategy and about VC investment. I am sure in these couple of entries I have only scratched the surface of this subject. The idea is to keep me and whoever reads this Blog on our toes and to be able to generate a conversation. Its always good to keep these concepts fresh. Feel free to add or comment on the available space.

Until next week, SHALOM!

An Ideal Greentech Portfolio - Part I

If you believe the Greentech wave is being formed; then you would agree that whoever invests in the future of Greentech should do well.

Following this train of thought I would like to propose, what I think, is an ideal portfolio for Greentech investments.

Greentech is a very wide term. To be more specific we will break it down into three areas: (a) Alternative energy; (b) Water;and (c) Waste Management. But, before we dig deeper into these three areas we need to define the investment criteria.

Criteria I - Technological innovation

It would be wise to invest in both, radical innovations, as well as in existing, proven technologies. The key for the success of greentech is based on "change". We need to change our power sources; change the way we use water; change the way we create and dispose of waste. This change will not come fast, it will be gradual. Therefore we need to bet on existing technologies for the short and mid term and radical, new technologies for the future. Be aware that betting on new technology is riskier than placing your money in proven technology, but the returns are inversely proportional.

Criteria II - Business maturity

Many people say that, when you invest in a business you really invest in the people that manage that business. Since we want to have a balanced portfolio, we should look into both companies that have a well established commercialization plan and an organizational structure to manage it, as well as in companies that are basically "newborn" (probably just a scientist and an idea).

Criteria III - Market

Last, but not least, we want to be as diversified as possible in the areas that (we believe) have an opportunity, within greentech to grow. This criteria has many levels of depth. Not only do we want to invest in the aforementioned three main areas of greentech (alternative energy, water and waste management), we also want to invest in different technologies within each one (i.e. within alternative energy: solar, wind, geothermal, etc). If the size of the investment allows for further diversification I suggest to take it one step deeper and invest, within each area in different technologies (i.e. within solar: PV and thermal; silicon cells and alternative light absorbing material cells; thin film and concentrated solar, etc)

Now we are able to place any greentech investment into our "diversified criteria map".

Let’s take two investments as examples:

Investment A - Capital injection to set up a new wind farm in Europe.

Investment B - Seed money for a new technology to create Hydrogen from water that requires less energy than current methods.

According to our criteria I - Technological Innovation: Investment A is a proven technology (as long as the turbines proposed for this new wind farm are already in use somewhere else). Investment B is a new technology. The ability to forecast the return on the investment (ROI) is much easier for Investment A than for B, but Investment B has a potential for higher ROI than A. As mentioned before this criterion is closely related to risk and return levels.

Criteria II: Obviously the wind farm has a more mature business model, it probably also has a management team in place. Depending on the stage the wind farm is in, it should also have permits and a thorough study of power generation forecasts and an appealing deal with the power company to sell the power injected back into the grid. On the other side, Investment B is only a concept from a highly regarded scientist in a recognized university. Investment B needs to go through many stages and overcome different obstacles to become a profitable business, but if it ever gets there... just imagine! This criterion is closely related to the required amount of investment. Investment B requires probably 100 times less investment than investment A for 50% ownership of the business (something like $100k versus $10MM).

Note that, when you analyze business A and B under the criteria of maturity, a different analysis is required for each one. For the wind farm is important to trust the team and the business numbers that are already in place. For investment B the questions are a lot harder, who is the scientist?, has he any proof of the concept?, what are his previous experiences launching a product?, who has seen this technology before?, do any competing technologies exist?.

Finally, under criteria III, we have looked at two investments in two different areas of greentech. Although both are under "alternative energy", one is related to power generation and the other one is related to power storage with multiple application possibilities.

Next week well continue building our portfolio. Until then, SHALOM!