NewNet Investor Profile: Robert Schrimpff, TVM Capital

1 May 2009

Robert Schrimpff

TVM Capital is a global venture and growth capital firm headquartered in Munich, Germany, which focuses on emerging companies within the technology and life sciences fields.

Schrimpff joined TVM’s Munich headquarters in 2006 and is responsible for European deal sourcing. Previously, he spent time at Shell Renewables, focusing on reducing the costs of offshore wind. He co-founded the INSEAD Energy Club and remains on its board. He currently chairs the Munich Network Cleantech Venture Group.

Why did TVM go down the cleantech route?

‘TVM Capital has over 20 years experience in investing in high tech companies, mainly in the life science and ICT Industries. The ICT Team have made a number of cleantech investments such as Revolt (a rechargeable high energy density battery) and Hymite (high brightness LEDs). TVM Capital’s management recognised that the cleantech theme offered potentially interesting investment opportunities and decided to increase its focus in this area.’

Is Germany a good place to be?

‘Although we look at cleantech opportunities anywhere in Europe, German based opportunities provide us with enough deal flow to not look at cleantech deals outside Europe. Virtually every recently established cleantech segment is dominated by German companies, Enercon, Multibrid and Repower dominate the market for the latest generation of large scale wind turbines. In Biogas, Envitec and Schmack are world leaders and in Solar Q-cells and SolarWorld lead the pack. Similarly I expect many of the future leaders in emerging cleantech segments such as concentrated PV, small scale solar thermal, biomass, energy efficiency and thermal cooling to emanate from Germany. It really is a case of why look further afield when you have so much going on in your own back garden.’

Within cleantech, is there a specific area that excites you?

‘Cleantech is a relatively broad field. One day you might be looking at a company that can turn wet biomass into biocrude, while the next day you might be focused on an energy efficiency company such as manufacturer of electric motors that could reduce energy consumption in building heating, cooling and ventilation systems. They are very different markets with totally different requirements. It is this huge variety and the fact that one of our investments could make a large positive difference to society, that I find exciting about cleantech.’

Which areas are you particularly interested in going forward?

‘Following an in depth analysis over the last three years, we are now considering energy efficiency in cooling applications and downstream solar integration as two of the most interesting areas to focus on. Cooling buildings and goods accounts for nearly one fifth of electricity consumption in modern society and yet it is remarkably inefficient. In solar the industry focus has been on creating cheaper and more efficient modules, yet the process of designing, selling, installing and financing these systems has seen little innovation so far.

Despite the huge investments in solar PV, there is still plenty of scope for more. Solar PV is not a single market. For instance the drivers for an ideal residential roof mounted system are very different to those for MW scale open field systems. These differences offer plenty of scope for further innovation. I am currently focusing not on better cell production but rather on the integration of the entire solution. Residential systems often deliver 75 per cent or less of their name plate capacity due to design limitations and inherent system losses. Whilst some of these losses are unavoidable, many are not.’

Do you believe this space is forming bubble characteristics?

‘One needs to look at the underlying assumptions as to why it might be a bubble. Do you believe oil prices will stay low forever? Do you believe that oil and conventional fuels are going to last forever? Do you believe that global warming is a passing fad? We may be wrong on one or two of these assumptions, but not all. The need to use resources more sparingly and reduce our impact on the planet is an essential long term trend. The question then becomes; What rate of growth is sustainable? Here there is scope for a bubble.

Most cleantech subsectors will experience a volatile growth path; growing fast one year only to stagnate the following, while demand catches up or legislation is re-adjusted. We have seen this already in the wind, biogas and now solar industries. Companies that raised financing at overinflated valuations during the growth spurts, may struggle to raise funding in the fallow years and potentially go out of business. Hopefully investors will resist the gold rush urge and invest at sensible valuations, based on more sober and sustainable growth expectations. I see no need for investors to bid up valuations on cleantech companies. Cleantech as a theme with potential will be around for years and I am convinced that some of the best opportunities are still to come.‘

Is the financial downturn impacting the industry?

‘Yes. Whether the impact is positive or negative is debatable. On the one hand valuations for early stage companies have become more realistic and growth expectations more sustainable. On the other hand more start-ups will fail to raise funding and many funded ones will struggle to meet their number and may fall by the wayside. Some consolidation is inevitable, but compared to other industries cleantech is still booming. Most sectors still expect double digit growth this year.’

What do you see as the biggest issue in the clean energy space today?

‘There are a number of factors. There are a lot of investors moving in this direction, with some perhaps overly keen to make their first investment and plant a flag in the ground. The urgency with which some deals are being done may result in too many players vying for the same resources. There is the risk that some of the wrong deals are being done as a result and long term this can have a negative effect on the cleantech venture capital industry as a whole as overall returns may disappoint.’

There is also a concern on the company side, where there are a lot of engineers and entrepreneurs starting companies in cleantech because it is seen as a growth area, yet there are a lot of unknowns surrounding it. You need a combination of deep industry knowledge and contacts, solid technology and experience in setting up and running this type of business. Finding all these ingredients in a single company is still relatively rare.’

What challenges do you face when investing in this space?

‘Each sub-segment has its own specific issues. Understanding what these issues will be before making the investment is a significant challenge. For example, energy efficiency, an area many people are interested in, yet has some interesting issues. A 50 per cent saving in energy consumption for fridge sounds promising, but if it means the fridges cost ten per cent more, will consumers buy them even if it makes long term economic sense to do so? We have not really got to the bottom of the whole psychological aspects; for instance people are keen to install solar panels on their roof and see the effect but are less enthusiastic about installing insulation, even when the return on investment on better insulation is more compelling. Understanding how consumers, customers and the entire supply chain will react and are affected by such a technology is essential to assessing how successful the innovation and its company will be.’

What are the positives to operating in this market?

‘From TVM Capital’s perspective, good solutions to big problems are areas that provide the potential for the type of returns our LPs’ expect. Cleantech certainly has that potential. The desire to make a difference to the world is a huge motivator to work hard and pick only businesses that really can make a difference. Like any investment though, it is ultimately judged on its ability to succeed financially.’

What excites you about a potential investment?

‘Generally we like a strong technical team who really understand the implications of their particular technology within the market it would operate in and as a result have potential customers lined up and offering to fund the first installations. When you come across those, it certainly makes the job pretty exciting.’

How has President Obama affected the outlook for clean energy?

‘It is certainly more positive than with the previous President. The expectations are now massive however, so let’s not put too much pressure on him. We are not counting on him to solve the world’s problems, but he is certainly having a positive influence on the cleantech sector already.’

How will the market develop over the next ten years?

‘Two things will happen. First, the number of companies describing themselves as ‘green’ will expand, similar to the way everyone called themselves a dot.com company back at the turn of the century. However, in this case there is a moral aspect attached too, so although people might be jumping on the bandwagon, it will be to societies benefit if done properly. Second, being environmentally sensible will become an intrinsic part of what you do. In time, every company will become more environmentally aware and more sustainable simply because not doing so will become increasingly expensive. How many companies could effectively remain in business today without using the Internet in some way? Similarly in future, unless you have made steps to become environmentally more sensitive you simply may not thrive.’

From a venture capital point of view, it may however become gradually less interesting because whereas now we are seeing a lot of innovation coming from small companies that can succeed in a relatively immature market. In ten years’ time, as the industry becomes more established it is likely to become dominated by larger industrial players and the barriers to entry for a small new entrants could become higher.’

Which European countries will be strong contenders?

‘Two years ago we researched this question quite carefully and I believe the answer remains the same. If you look at deal-flow and talk to other venture capitalists who look at cleantech, Germany remains the single largest source of cleantech innovation and deal flow, accounting for nearly a third of the European total. On the other hand more ambitious and experienced management in the UK, combined with better access to early stage financing makes the UK a strong contender. France is also a strong contender as changes in tax rules there regarding venture capital are now far more conducive to encouraging investment in early stage companies than in Germany. As a result the number of French-based funds is increasing, while the number in Germany is shrinking.’

Copyright © 2009 newnet

Tags: biogas, biomass, cleantech, energy efficiency, solar, solar thermal, venture capital, wind

This story was published on Friday, May 1st, 2009 at 12:20 pm 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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