Northern Europe is sending mixed messages to cleantech investors

Some North European countries offer a more appealing environment than others for cleantech investors. Heading from North to South, our experience has been as follows:

Norway’s economy is very much driven by oil and shipping. As a result there has been little hard incentive to create clean technology hubs – and where such technology has been developed, the oil and shipping industries have created large pools of privately-controlled capital to finance them. The one exception is the solar company Renewable Energy Corporation ASA, which has developed and financed a number of spin-offs, including some very interesting geothermal technology companies.

Neighbouring Sweden has, by contrast, had a different development trajectory. A lack of natural resources has created both a more diversified industrial base – extending to pharmaceuticals, automotive and high technology – as well as a focus on reducing energy intensity. The latter in turn filters down to a ‘green’ population who are willing to become early adopters of clean technology.

Alongside this heritage is a mature and active private equity and venture community which looks to a firm like WHEB as an international co-investor. I should add that Sweden’s openness also makes it a market where one can invest cross-border, as we have done in Petainer, without the need for a local office or co-investor.

It is a similar story in Denmark - which has just recently increased its renewable energy target to 50 per cent – with the added benefit of being easy to serve from Germany, both geographically and linguistically. Local investment in spin-offs, public sentiment towards both cleantech and the environment, and an open business culture, makes Denmark both a tech hub and a good place to do business.

The Benelux region has a both an outward-looking culture and a lack of natural resources. A long history of international trade and the small size of its domestic markets encourages cleantech firms to look to international markets relatively early in their lifecycles – providing the logic for the presence of a growth investor.

Germany – my home market – is a much more complex story. On the one hand, it is a very mature and diversified industrial nation with its famous bedrock of Mittelstand companies. Some of these have even seen the repatriation of manufacturing business it was once assumed had been lost forever to China, as buyers have tired of extended supply chains, long lead times and variable quality.

A number of German companies have turned to clean industrial processes and recycling in past years and been able to integrate these into large industrial supply chains. An example is FriedolaTECH, which produces a truck floorings and transport containers from recycled plastic.

But although the industrial profile of Germany is attractive, the culture and financial environment provides its own set of challenges for an international investor. The owners of privately-owned, mid-size businesses are often sceptical of foreign investment, preferring to hand on their firms to the next generation with a stable but limited national client base. With local – and sometimes ultra-local – banks on hand to fund such business with low-cost debt, many fail to see the rationale in selling a growth equity stake.

Elsewhere in this region of Europe, Switzerland shares something of Norway’s focus on interconnected private sources of capital – making it more difficult to access good opportunities in the absence of a local co-investor looking for an international partner. Meanwhile Austria does provide some opportunities, but nothing on the scale of Germany.

Lastly, the UK is uneven and perhaps the most difficult to generalise about. On the one hand, the move away from manufacturing to services is so complete that the any hope of recovering industrial capacity from China – as Germany has begun to – is completely unthinkable.

However, the country is still in possession of certain world class niche capabilities which can, and are, being redeployed towards cleantech – including from such an apparently unrelated area as motorsport. The so-called Anglo-Saxon business culture mitigates toward investment, and yet both the grant regime for early stage R&D and the capital gains tax regime on cleantech investments, do not.

Following the global financial crisis, both public and private finance in the UK is more precariously balanced than in other Northern European countries. In addition, the regulatory regime is more uncertain, as witnessed by the recent reduction of solar feed-in tariffs. There is also greater public scepticism about climate change, with a recent public survey showing a decline in the number who believe in man-made global warming.  All of which adds up to making the UK’s position in cleantech development uncertain.

The immediate manifestation of this is that those companies that do create and patent disruptive technologies tend to be sold overseas years before they reach the kind of output or market presence that they might on the continent.

Submissions are currently open for European Cleantech Companies to present to international investors at the Tech Tour Cleantech Summit in Geneva on 6th and 7th July 2011 – see details here on Sciencebusiness.net – alongside a programme of international speakers.