Bubble Watch – Part 1: Cleantech
The end of the old year and the beginning of the new year always lends itself to a retrospective on the past and speculations on the future. And what could be more enticing to speculate on than the latest financial bubbles; a worthwhile topic since 1637, when some single tulip bulbs in Holland sold for more than 10 times the annual income of a skilled craftsman.
So here goes our list of contenders for 2011 bubbles:
A search for “cleantech bubble” on Google returns 87,300 results. Not bad for an aspiring bubble. A search in Google News returns 74 results, up from 26 results for 2009. A Google search may not be scientific evidence of a bubble, but it can serve as a helpful proxy in our hunt for bubbles. The Cleantech Group researched that Q3 2010 venture investment in cleantech was down to $1.53 billion; 30 percent less than the previous quarter, and 11 percent less than the same period a year ago. Investments for the first three quarters in 2010 were still slightly ahead of the same period in 2009, thanks to a strong first half of 2010. Public markets are still somewhat supportive of anything green; Li-Ion Battery maker A123 systems, which went public in 2009 may be down from its high of $25.77, but even around $9.50 it is trading at about 10 times trailing revenue. Electric car maker Tesla trades at over 25 times trailing revenue, which leaves ample room for future revenues to catch up with the current valuation.
In general, it seems that the public market has not yet caught up to the more modest outlook of venture investors.
For a more bullish view on cleantech, Claremont Creek’s Nat Goldhaber looks at a rebounding IPO market to stoke the public interest in all things green in 2011.
Of course timing is everything in bubble land: one man’s short term investment gain is another’s man’s loss when the bubble pops: And, as the example of the Li-Ion battery market shows, those bubbles may take a while to pop: strategy consulting firm Roland Berger expects the shakeout in the Li-Ion battery market to decimate the number of companies from around 60 to 6. But consolidation is not expected to start until 2014. That leaves plenty of time for bets before the bubble pops!
Gunther Hofmann is a Vice President of The Brenner Group and has done extensive work in valuations, M&A, venture capital, and corporate finance with significant international experience in small firms as well as global corporations. Gunther earned a Masters Degree in Electrical Engineering and Business Administration from Darmstadt University of Technology in Germany, and was a Visiting Scholar at UC Berkeley. He is a holder of the Chartered Financial Analyst designation, and a member of the National Association of Certified Valuation Analysts. Gunther is Chairman of the Software/IT Industry Group of the German American Business Association (GABA).
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