Compared to cleantech funds like Braemar’s $250 million or Expansion’s $100 million, a low double-digit fundraising might not turn too many heads. But Greenhouse Capital Partners, which says today it has closed $11 million for a fund that will focus between half and three quarters of its resources on seed-stage cleantech startups, says smaller and earlier investing is better.
Founded in January 2006, the fund is Greenhouse Capital Partner’s first. The firm’s typical investment ranges from between $250,000 to $1 million. Managing Partner Peter Henig explains to us via email why seed stage is a good place to be in the cleantech world:
We have a pretty strong belief that if you look at the economics of venture capital right now, being a smaller fund is better, for several reasons. First, it allows us the flexibility to target the seed stage entrepreneurs and startups that need small amounts of funding, $250K-$1M, and yet don’t know where to turn. At the seed stage, particularly in cleantech where the industry is still finding its legs, entrepreneurs really want, and need, smaller amounts of capital to get going while also benefitting from strategic relationships and introductions. — Peter Henig, Managing Partner, Greenhouse Capital Partner
In addition Henig says the economics of a smaller fund are a bit easier than at the $400M level: “It’s just simply easier for us to get to 3X returns on a $10-15M fund (i.e. $30-45M in exit value for our companies), versus a $400M fund trying to get to 3X, ($1.2M).”
And due to the hype surrounding the cleantech space right now, Henig is also being a tad cautious. He says investors should be aware of:
- elevated valuations, given the number of funds chasing too few deals
- the concern that many cleantech deals are project finance rather than venture finance (i.e. wind, tidal, etc.)
- the ecosystem for exits has not yet matured and will take 5-7 years to do so, which provides an even stronger argument for a seed-stage investment in this area
What do you think? Is seed stage, early and small, a good strategy for cleantech?