“The management team in a company is the most important single attribute because successful entrepreneurs have a record of becoming serial successful entrepreneurs,” says Peter Horburgh, a partner in the Environmental Technologies Fund. This venture capital investor has recently closed its first fund, having exceeded the original target size and achieved £110 million (US $220 million). Investors include Swiss Re, the European Investment Fund (EIF), Robeco, the Co-operative Insurance Society and F&C.

ETF’s secret, says Horsburgh, is to invest in ‘cleantech’ companies when they are generating early revenues. “If someone is already buying the product, it has potential. They will not yet be cash flow positive or profitable and we provide developmental growth capital, typically money to fund expansion to full product phase.”

ETF sifts through 10 to 15 potential transactions a week, looking for companies already with sales of a product which is measurably environmentally beneficial. In addition, it needs to be offering a globally scalable solution that addresses a big market because that means volume and good volume means good revenue.

“After the management team, the second most important asset is the robustness of the product,” says Mr Horsburgh. “We look for strong intellectual property which might be a patent or very extensive know-how. We assess it with our own internal resources and we task external consultants for specialist due diligence to verify an aspect of the technology or verify the size of the market.”

The two leading examples of ETF’s investment strategy are Perpetuum and Metalysis, which have received £5 million and £13 million respectively. Perpetuum, quite literally, gave ETF good vibrations. It is selling a range of micro-generators developed at the University of Southampton that harvest useful electrical energy from the vibration of machinery. This energy, which would otherwise be wasted, powers wireless sensing systems that monitor a machine’s performance.

Such monitoring technology is found all over the place, in aerospace, transportation, medical facilities, water treatment plants and innumerable industrial facilities. Perpetuum’s clever device allows for continuous monitoring without the need to replace batteries or install expensive wiring.

The product from Metalysis is just as clever. Many high value metals such as tantalum and titanium, with gigantic markets, are found bound up with an oxide from which they have to be separated. That normally involves carbon-hungry smelting facilities and environmentally damaging acids, which give off toxic gasses. In 2003, some 4.2 million tonnes of titanium dioxide was mined and the high cost of smelting it means that titanium is around six times the price of stainless steel. Metalysis aims to capitalise on that by providing a low-cost alternative method of separating the metal from the oxide developed by Professor Derek Fray, Dr Tom Farthing and Dr George Chen at the University of Cambridge. This uses a molten salt, no more toxic than table salt, to drive the process at lower temperatures without the need for smelting. That generates valuable metal powder with less carbon production and the only by-product is harmless oxygen.

Interestingly, neither of these investments are driven by Government policy. “Policy is certainly a factor in investing and is one of many primers. But others are the economic and industrial importance of energy efficiency,” says Mr Horsburgh. “There is a global move to become more energy efficient and reduce greenhouse gas emissions. The advent of the EU’s Emissions Trading Scheme made greenhouse gas a balance sheet item for companies and that has done a great deal to heighten awareness, as has the need to address climate change. Governments may cause things to happen but we are looking at products and services that are intrinsically increasing efficiency. We would be quite wary of a company that is purely in existence because of a Government dictat or policy.”

Typically, low carbon technology companies go through clearly defined phases with decreasing degrees of risk for investors. Early on, the company might involve just one or two individuals who invented the low carbon solution. At this point, family and friends are often the major providers of start-up capital and the risk is very high. Organisations such as the Carbon Trust then help to ‘incubate’ the nascent company, bringing in external funding, growing the team and, essentially, protecting the intellectual property. This phase provides opportunities for the high-risk private investor and some specialist firms with expertise at the regional or industry-specific level. But it is rare to see large institutional investors getting involved until the company is actually achieving sales. The maxim that you should never invest in a sector that you know nothing about still holds true. But now, at least, there are plenty of specialist firms who can fill your knowledge gap.

Explore Related Reports

• Best Green Companies

• Wealth Management

• Green Money