All in the family: A new kind of billion-dollar cleantech fund

Cleantech investing may not have produced many big exits or returns so far, yet it keeps attracting investors who believe they can do better using the lessons learned over the years. Enter the Cleantech Syndicate, a consortium of 11 families that plan to invest $1.4 billion in cleantech companies and projects over the next five years, working with investment groups McNally Capital and Black Coral Capital.

The syndicate’s structure allows the 11 families and their own money managers to pool their knowledge and resources in making investment decisions. Black Coral, for example, makes investments on behalf of one family. Other families have their own money management, which they had in place before the syndicate, said Rob Day, a partner at Black Coral.

McNally and Black Coral will play a key role in bringing deals before the families, but they won’t be the only investors working with the group. One of Black Coral’s advisors is Michael Ahearn, the current chairman and former CEO of First Solar (s fslr). The group declined to the disclose names of the families.

The syndicate will consider investments in a wide variety of cleantech segments, including energy efficiency, energy storage, solar, chemicals from renewable sources, water, biofuel and recycling, and will invest in both early and late stage deals, Day said. Mostly the investments will be done in companies in North America.

The families and their investment managers don’t have to agree on every deal presented to them and can instead choose which ones they want to place their bets on. “There are a lot of startups that need corporate capital, but they also need project financing, yet the project financing community sometimes view them as too early,” Day said. “We have the flexibility to play multiple roles under the same company.”

These families already were actively investing in cleantech before forming the syndicate. Some have been developers of wind farms and rooftop solar projects while others have founded solar technology companies. The group also includes real estate and fleet vehicle owners who are interested in fuel efficiency technologies.

The investment flexibility of family funds sets the syndicate apart from venture capital firms, which tend to go after high risk, high reward early stage companies. VCs typically expect five to ten times in returns on their investments within a certain period (around seven years). But after years putting money in the cleantech space, many VCs have learned that the amount of capital and time it takes to nurture a startup is a lot greater than they expected. Many greentech startups have run out of money before they could complete technology development, or haven’t been able to raise capital from banks or other investors for building a needed factory, refinery or power plant to start selling their products.

There has been a lot of soul searching in the greentech investing community over the years, and some VC firms have toughened their selection processes, narrowed their investment focus or just plain fled the sector. New investment funds have cropped up to target companies that need later-stage capital for bringing their products to the market. Earlier this year, Silver Lake announced it was launching a new fund, with money from billionaire George Soros, that aims to finance the build-out of more proven technologies worldwide.

With this new syndicate model, the family investors don’t have to follow certain rules that venture capital or institutional investors follow, like the same aggressive investment return goals, which often put pressure on finding exits through an initial public offering or sales. Family investors can consider lower-return, but also lower-risk, investments like financing renewable power project construction.

At the same time, these types of family investors are looking for more guidance about investing in greentech. They don’t always have a large cadre of money managers and researchers, and they don’t always network with each other partly to protect their privacy. As a result, they often follow the VCs’ lead, focus on angel investments, or simply avoid early-stage cleantech investments. With the syndicate, the families, whose collective net worth is over $30 billion, can share resources to improve their investment portfolios.

The syndicate is looking for investment partners, and it plans to launch a European Cleantech Syndicate later this year.

Image courtesy of David Beyer via Flickr.