Wednesday, April 22, 2009

Federal Funding May Be First And Last Resort For Cleantech. And: Milken on Capital Structure

Some V.C. inside baseball from the Wall Street Journal:

Venture capitalists investing in clean technology are closely watching a number of possible government funding sources that could replenish the later-stage capital that has largely evaporated.

“The biggest impact [on cleantech] is the overall financial situation in terms of availability or lack of availability of debt, tax equity, project finance money, later-stage private equity or hedge funds,” said Stephan Dolezalek, managing director and head of the cleantech practice at VantagePoint Venture Partners. “Really everything past the venture stage has largely disappeared. It’ll take time to come back.”

Dolezalek was speaking alongside several other investors in a panel that kicked off the Dow Jones Alternative Energy Innovations conference, which is running today and tomorrow in Redwood City, Calif.

Josh Green, general partner at Mohr Davidow Ventures, said the cleantech industry will benefit from the federal funding allocated by the loan guarantee program, the stimulus bill, and a clean-energy bill that is being considered now. But the exact form all this funding will take is still unclear. He is hoping for a some kind of venture debt program.

“I’m hopeful as a VC who’s protective of the capitalization table that it’s a debt instrument we end up with,” Green said. “Something akin to a super large venture lending instrument where someone takes a higher than normal interest rate with warrant protection and would not destroy the cap table. It’s proven that that’s something that does pay back investors. The government plays a very important role in the next year or two in that financing gap being filled.”>>>MORE

HT: Environmental Capital

I personally believe that any assistance to VC's is repugnant. If there is to be such assistance the American taxpayer should participate in any upside to the same extent that other investors do, or perhaps more so, if the govvy guarantee is what makes the whole thing happen.

The Journal has an opinion piece by Michael Milken that may be tangentially relevant [is that an oxymoron? -ed]:

Why Capital Structure Matters

Thirty-five years ago business publications were writing that major money-center banks would fail, and quoted investors who said, "I'll never own a stock again!" Meanwhile, some state and local governments as well as utilities seemed on the brink of collapse. Corporate debt often sold for pennies on the dollar while profitable, growing companies were starved for capital.

...My belief -- first stated 40 years ago in a graduate thesis and later confirmed by experience -- is that capital structure significantly affects both value and risk. The optimal capital structure evolves constantly, and successful corporate leaders must constantly consider six factors -- the company and its management, industry dynamics, the state of capital markets, the economy, government regulation and social trends. When these six factors indicate rising business risk, even a dollar of debt may be too much for some companies.

Over the past four decades, many companies have struggled with the wrong capital structures. During cycles of credit expansion, companies have often failed to build enough liquidity to survive the inevitable contractions. Especially vulnerable are enterprises with unpredictable revenue streams that end up with too much debt during business slowdowns. It happened 40 years ago, it happened 20 years ago, and it's happening again....MORE