NewNet Investor Profile, Frank Levinson, Small World Capital

17 December 2008

Frank Levinson

Frank Levinson discusses the growing opportunities for cleantech investment in the US.

Small World Capital invests in very early stage companies, primarily in the cleantech space.

Frank Levinson is the founder and managing director of Small World Group. Prior to this, he was the founder, CTO and chairman of Finisar Corporation and was responsible for technology and part of the global expansion of the company. Levinson also sits as a judge for the California Clean Tech Open business plan competition.

What areas do you focus on?

‘Cleantech and renewable energy are both of interest to us. Within these sectors, we focus on materials and monitoring how successful new products are. For example, if you put up solar panels, there needs to be a system in place that will monitor how effective they are. I think this is going to become an area of increasing importance.

The ways in which monitoring can help are numerous. If, for example, your home has solar hot water backed up by natural gas, if there is a problem it can take several weeks to analyse the data and get it fixed. With an efficient monitoring system this could be addressed with greater ease, and much more quickly.

The key fact is that we are in an industry that is very young and not experienced at making highly reliable equipment yet; things fail and no one is held accountable. Monitoring allows for accountability, and that is good for the industry in terms of its development, growth and reliability.’

What type of investments do you like to make?

‘We are currently working with a couple of start-ups in the green building sector, as well as working with a couple of small start-ups whose focus is on monitoring. We are involved with a small start-up currently, but primarily our focus is on early stage investments. I enjoy investing in companies which I feel confident will grow to a significant size and have success.’

What do you consider the best opportunities to be going forward?

‘With the US on the brink of change following the recent presidential election, I feel the US is a great place to be investment-wise. Barack Obama has been very vocal in his support for green initiatives, and the US is very blessed with low hanging fruit; we are rich in wind and solar sites.

It is important that we capitalise on all the fantastic opportunities the climate across the US affords us. From the moment we started, the US surpassed expectations within a couple of years. In terms of size, we are similar to Europe, but we have a lot more sun and a lot more wind sites. I do believe we will stumble across problems but we will also discover new and exciting opportunities, so the US is very much the place to be over the next five to ten years. In terms of certain sectors, I am extremely keen on pursuing the green building space. We have been wasteful and as a nation, we really need to catch up with Europe, in terms of their development, approach and whole attitude towards the space.’

What challenges have you encountered?

‘So many people have good ideas but they are naive about how to start a business. There are a lot of people who are great inventors but lack the business acumen required and that poses a problem for the industry, as it is still relatively new.

There is also the issue of others jumping on the bandwagon. Given the current climate, there are those who are unsatisfied in their original sectors and are looking to make a move. They may not be the most qualified, but they are still looking to participate. However, with the breadth of this market and the fact that it is so new, I am not overly worried at this stage that the industry will become over-crowded in the near future.’

What are the benefits to operating in this space?

‘I would say there are virtually unlimited upsides. There is truly not enough we can do. In reality, a good product that works will be accepted into the market. Also, because of the enormity of the market, there is a rewarding financial aspect attached to it; it is becoming increasingly essential in this day and age to develop new products and initiatives.’

How do you source good investment opportunities?

‘As investors into a rapidly growing sector we obviously see a lot of business plans. We may reject the majority, and while I may not actually invest there are some I try to offer advice to if I like what they have to say.

It is so important just to stay aware of developments in the industry and keep abreast of what is a pretty fast-moving space.’

What is the biggest issue facing the industry right now?

‘Many of the projects that are being conceived are very large capital projects and they are just not amenable to a venture approach at this point of time. If you want to develop a biofuels plant or a solar power plant, you would find it extremely difficult to raise the capital required by the venture capital route to put it into practice, and most people find this a huge stumbling block.

This is why we like to focus on the smaller end of the space, as we feel there is huge promise and opportunity to be found in this area as the industry continues to grow.’

How do you think the market will evolve?

‘I believe that the US and Europe will soon see some sort of taxation system implemented which could positively affect the renewable energy industry.

For example, if the US were to implement a tax which had the effect of holding the price of imported oil above $80 per barrel then this would help oil prices hold steady and as a result, renewable energy may have the chance to compete.

Once this occurs, I believe a lot of the big companies will get involved because they will sense the opportunity for major projects. Over the last year a barrel of oil has sold for above $150 and now is below $60. This instability in the price makes understanding the value of a venture very difficult. What works with oil at $100 may not be at all profitable with oil at $50.

There will also be opportunities for the smaller companies because the renewable energy and cleantech sector is a very big sandbox, affording everyone the chance to get involved at a variety of different levels and in a number of different fields.’

Will impact will the economic downturn have?

‘The financial crisis will not slow the entire industry down but what it will do is encourage people to focus on those who have made successful investments in this space. In a way, the economic downturn was inevitable and almost healthy following the boom previously experienced. At some point in the future, the boom period will appear again but for now what one needs to do is focus on prudent investments, and on not being too erratic.

The financial crisis highlights the element of risk, so I do believe people will need to be more careful when selecting investments. However, in comparison to other businesses, the environment is always a good risk and therefore I do not foresee a decline in growth.

India and China will never grind to a halt. These are countries that are huge in size and hungry for new developments. The ability to soak up new projects and propel the cleantech and renewable energy sectors will change the picture of the world.’

Copyright © 2008 newnet

Tags: gp, green construction, investor profile, venture capital

This story was published on Wednesday, December 17th, 2008 at 9:59 am and is filed under profiles. You can follow any responses to article entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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