Building the dream

Fri, Mar 5, 2010, 00:00

The Masdar division of Abu Dhabi’s sovereign wealth fund is a major player is the global cleantech sector. Dubliner Alex O’Cinnéide manages the fund and talked to Innovationabout its future

HAVING PLOUGHED hundreds of millions of pounds into Manchester City FC, bought stakes in global titans of the business world such as Rolls-Royce and Ferrari - and despite having to bailout its neighbour Dubai to the tune of $10bn in December and January - Mubadala, the main arm of Abu Dhabis sovereign wealth fund, is also bankrolling 12 clean technology companies through its Masdar division.

A career which involved working in the venture capital world in London and New York – after graduating from Trinity College – led Dubliner Alex O’Cinnéide to the door of the Masdar clean technology fund, which he has quickly established as a significant global player in the cleantech VC sector. With the added advantage of the Masdar eco city, which is being built in the Emirates, providing a valuable proving ground for some of the technologies in which it has invested, he has just closed the first $265 million fund. One of its investee firms, thin film solar technology company Solyndra, filed for a $300 million IPO last December. A second fund with similar ambitions – in which the investors include Siemens, GE, Development Bank of Japan and Japan Bank for International Co-operation – will amount to significantly more, he says.

Unlike the media-shy senior executives at Mubadala – which is run by a staff of 1,500 – the engaging and fast-talking Irishman granted Innovation an exclusive, if rapid-fire, interview at the recent World Future Energy Summit (WFES) in Abu Dhabi. Irish companies should be among those that the second fund invests in, he says, adding that wave and tidal energy – a sector that will be capital intensive as operations progress, and in which Ireland has substantial resources – is an area they plan to look at more closely.

Do the benefits and the know-how from your investments feed into the other Masdar businesses?

Masdar City is a huge development, where they’re using new technologies in power generation, waste disposal and energy efficiency and we’re making investments in those spaces. Those investments are good for everybody. We don’t make them because we want Masdar City to use them, but obviously they might use them. We push them forward and put them in front of our colleagues in Masdar City and see what we can do with them there.

Do you see yourselves creating a utility or combining them into a utility company?

If you look at Masdar Power, they’re working in the area of power generation here and globally. Enertech, one of our investments, processes sewage sludge which it uses to generate power. We have a project in LA making fuel, making power. We initially invested in the technology and we ended up with this investment in the power plant.

When you invest in a company, would the IPO be your preferred exit strategy?

Everybody wants to have an IPO. But from our perspective, we’re a pretty long-term investor. That’s the Masdar frame of mind. We want to be able to provide capital, provide expertise and grow companies, so we’re happy to hold on to our investments for a long period of time. When you look at an exit, it’s about what’s right for that company at the time. Should they do an IPO and get a new group of investors in, or should they stay with private investors? These are the questions a company asks. Again, there are very large capital requirements in this industry, so you need more and more capital at various stages and there are a limited number of ways in which you can get that.

Do companies approach you with proposals on a regular basis?

Masdar is a huge brand and we’re the best in the world at looking at deals and opportunities. When I think back to our first fund where we made 12 investments, we wrote documents about over 1,000 companies. And then there was “x” amount more that we declined just because they weren’t right for us. So that’s a 1.2 per cent investment rate. But that’s the nature of the business because capital is hard to come by and we’re the ones who can manage it properly.

Has the appetite for greentech investments declined in the aftermath of Copenhagen?

I think everybody who attended the WFES is disappointed about the situation, but we all share the attitude that life goes on. People are still coming up with new technologies and investing in these kinds of businesses. Last year was tough. People battened down the hatches and tried to understand what was going on, given that there was a lack of liquidity of debt finance and equity was very expensive. Everybody concentrated on their portfolios to see if they were well funded enough and how can they be helped.

In 2010 obviously those things still go on, but management teams are getting better in this industry. More mature people are coming along with better experience. Capital is now becoming available. Governments are helping, through tax credits and supports, because a lot of renewable energy is not economic in the way that we measure it today. It’s going to take money and technology to get it to be cost effective and that requires a lot of us working together to do that.

What will be the next groundbreaking development in green technology?

I think it will be in areas where there’s a crossover of technologies. In biotech there are some very interesting things going on there in terms of materials, in energy and in using biological agents to help to break down waste in the waste disposal business. But we also see what are relatively simple technologies. In Germany, one partner has invested in a company that makes wireless light switches. So when you press the light switch, it captures kinetic energy and connects wirelessly to a light. So your whole building doesn’t need wires to connect its lights or light switches. That’s an enormous amount of money you’ve just saved.

So there are always the big bang technologies, like our solar panel (which we believe is the best), but there are a whole lot of other technologies as well.

Can you see technologies related to wind and perhaps marine energy having a place in your investment portfolio in the future?

Masdar has an investment in the turbine maker Winwind. We’re very bullish on wind energy. There are opportunities in new technology plays in the wind sector. In terms of wave and tidal, we haven’t really looked at it that much. I think we might to start to look more at it. I think there are concerns about operating costs of stuff that’s in the water for 20 years. I anticipate that we need to understand more and we’ll do more around all water-related technologies in the future, such as desalination, so it could play a part in that.

Do you think there is a need for more seed capital in the greentech space, and would you ever devote a share of your fund or your profits to seed capital investments?

We do have an appetite for early stage stuff. Admittedly the majority of our funds have gone into later stage stuff, but the appetite is there.

We’re not risk averse – risk is just a factor of price. And we work closely with the Masdar Institute of Science and Technology, who have a group of scientists, and we’d love to be in a position to fund some of their ideas, for example.

What tips would you give to a green startup that might be looking for seed or venture capital?

The number one thing is that this sector will be capital intensive. You need to understand where this capital is coming from and when is the right time to get it. We have invested in certain companies that have taken hundreds of millions of dollars of funding and they haven’t made a profit yet.

It helps if you have a defined path and a destination that you’re aiming for.

I invested in the dotcom era – luckily I didn’t get burned – and once you had put some software on a CD and you’d mailed it out, you were done. It’s not the same when you’re building machines that deposit nanolayers of material for a hugely complex factory in Silicon Valley.

As an entrepreneur, your skillset is different. Management teams need entrepreneurs with vision, the technology, but also some depth of management experience. It might not just be the entrepreneur; it might be the guy beside him. But that needs to be there.

Has your fund looked at any Irish businesses?

We have, but we haven’t invested in any yet. In our first fund, we ended up with about 65 per cent of our investments in North America and the rest in Europe. But we hope to reverse that ratio for our second fund, and Ireland should be a part of that. There’s some good technology there and some good entrepreneurs.

What would you see as the potential for manufacturing to make a comeback through the greentech sector?

We have investments in Silicon Valley, such as solar energy firm Solyndra, which are in essence manufacturing divisions. Manufacturing was supposed to have died in the US but that hasn’t happened. At some stage manufacturing becomes monetised in terms of the value you’re capturing. For a good period of time, manufacturing will make a comeback.

But is there really the potential for employing a lot of people through green manufacturing, or by their nature are they lean, highly skilled and specialised operations?

Green and cleantech are amazingly wide areas. So a physicist working on a new technology doesn’t really have anything to do with a worker processing black bag municipal sector waste at a waste-to-energy plant. There are a whole range of skillsets. There are no real green jobs or renewable workers. You’re an engineer or you’re a physicist or whatever.

Across the board, there are different sectors being set up, which have value and an economic impetus that need people with skills that we have now. What is different is the business model.