Michael Bleby
14 October 2008
Johannesburg — IT IS about time Darryl Howard struck it lucky. The entrepreneur who develops "green" projects has taken on 30 of them in the past five years. Only five were worth seeking funding for - "there's always a hurdle or some fatal flaw" - but none of them got it.
He estimates he has spent about R5m worth of his and his partners' time and money for projects that haven't come off.
Johannesburg-based Howard is now devoting himself full-time to his best prospect. Earth (Environment And Remedial Technology Holdings) has developed technology to treat the polluted water coming out of mines, such as uranium-tainted water from gold mines. He has scraped together R15m to conduct a 1:100-scale demonstration project. To commercialise it will take between R300m and R500m.
There is a greater appetite to invest in such projects than ever before and that gives him hope.
"The market is ripe for these kinds of developments," he says, pointing to moves by miners Mintails, Harmony and DRDGold to start a company to treat wastewater from their operations on the West Rand. Anglo Coal and BHP Billiton Energy Coal SA did a similar project in Mpumalanga. "The tables are now turning. You can't do business unless it's in a sustainable way," says Howard.
A similar view has been taken by the backers of Cape Town-based Inspired Evolution Investment Management's Evolution One fund, SA's first venture capital fund designed to invest in "clean" technology.
"From a standing start six years ago when 'cleantech' was not a defined investment category, we've seen it grow exponentially," says Nicholas Parker, founder of Cleantech Group of Brighton, Michigan, and a member of Evolution One's advisory board.
The term "cleantech," registered by Parker's group as a trademark, refers not just to methods of low-impact energy generation but to procedures that make current practices and technology more efficient and less environmentally harmful. "We've got to do more with less," Parker says. Since 2002, the cumulative investment in this sector is close to $20bn. The largest US funds are about $500m in size.
Whether Howard, who is planning to make a funding pitch to Evolution One next month, will get funding is unknown. The fund, which has raised R400m of the R1bn it aims for, says it will conclude its first investment before the end of the year. One potential investment is carbon "co-generation" plants, which capture the carbon-rich gases spewed out by factories, burn them to generate electricity and sell that back to the firms producing the gases in the first place.
Worldwide, solar energy production accounts for 36% of cleantech venture capital investment. Biofuels come second with 15%. Other investment categories include transport, wind power, agriculture, water purification and green buildings. The difference with green investment pushes is that these are driven by economic opportunity, to make money, rather than by regulatory requirements, proponents say.
"From a purely business point of view, some of the key opportunities that are arising (are) in the business side of the environment," says Iraj Abedian, CEO of Pan African Capital Holdings and chairman of the fund's advisory board.
The potential is there. Parker cites World Bank figures showing that current investments in clean energy production alone in sub-Saharan Africa total $157bn. But investment from sub-Saharan Africa is so far lacking. The R400m in capital the fund has raised is all from overseas -- from London-based partner Consensus Business Group and the World Bank's International Finance Corporation investment arm, as well as Swedish and Swiss investment funds.
"The notable absence is local investors," says Zuko Kubukeli, an executive director of the fund. "They don't understand it as well as the international investors."
Getting local buy-in will take time. It is also questionable whether now is a good time to be raising money, given the credit crunch that has seen bank failures and nationalisations worldwide and put severe curbs on the availability of cash. The fund says it will not be a problem, even if views vary about how long this will take.
Kubukeli says they will meet the R1bn balance by the end of next year. Fellow executive director Guy Baxter is "fairly confident" that they will get there by midyear.
The asset manager plans subsequent funds and it is likely that the focus of investment will change as technology improves and changes in behaviour make cleaning-focus ed products less of a priority. "The bar will get higher and what was considered cleantech today will not be considered so (in the future)," Parker says.
For now, however, there is plenty to clean up and Howard is hoping his ship will come in. Even if he doesn't get funding from Evolution One, there will be other such funds. Howard says he feels like a surfer who has long been sitting on the beach, waiting for a non-existent swell to rise. Funding for ventures like his, once limited largely to bodies such as the science and technology department's Innovation Fund, has, he estimates, risen tenfold as other investors have warmed to the area.
"It's like sitting on the beach with your surfboard. These kinds of funds represent the crest of that first wave," he says.
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