Public Release: 28-Sep-2017
Case Western Reserve University
IMAGE: This is Anurag Gupta. view more
Credit: CWRU
With a grant from the U.S. Department of Energy (DOE), researchers at Case Western Reserve University will develop a new financial product to attract a broader pool of long-term private investors to new technologies offered by energy startup companies.
The goal is to help bridge the so-called “valley of death”–the gap between a startup’s initial seed investment and later rounds of financing when the new company has already scaled up and is profitable. That gap can leave a promising startup struggling with cash-flow, as additional private investment can be difficult to secure until a new technology advances from an idea to proven success.
“There is an immense challenge in the new energy sector, with venture capitalists drifting away from clean technology investments in recent years, making it tougher for startups in this sector to prove their viability,” said Anurag Gupta, the H. Clark Ford Professor of Banking and Finance at the Weatherhead School of Management and principal investigator on the grant.
Joonki Noh, an assistant professor of banking and finance at the Weatherhead School, will serve as co-investigator.
A new financial product, tailored for a specific risk-return appetite
With the two-year, $600,000 DOE grant, the two researchers will design the new financial product with unique risk reduction strategies to pool investments from large capital providers–pension funds, insurance companies, and foundations, for instance; these investors currently shy away from this sector due to lack of suitable investment products tailored to their risk-return-payout preferences.
“We hope this facilitates billions of dollars to flow to new energy projects at the critical scale-up stage,” said Gupta. “This could help address a global problem by advancing efforts to finance sustainable energy.”
Most of these new technologies targeted for private investment aim to generate renewable energy and lower emissions of carbon and other gases that contribute to climate change, as well as reduce levels of particulate matters emitted from burning fossil fuels associated with a host of health issues–while at a lower unit cost.
“The participation of large capital providers like pension funds is critical to generating sufficient capital to finance widespread scale-up of these new technologies,” said Gupta, “since the traditional venture capital model has proved to be unsuitable for this sector.”
Commercializing a new energy technology often requires investing tens of millions of dollars–a significant risk to venture capitalists intrigued by an idea, but wary of its uncertain market performance. Energy investments also often takes much longer than the seven- to ten-year “exit” timeline that venture capitalists are known to prefer.
Grouping together steady and significant sources of long-term funds can allow for the investment in multiple energy projects at once, spreading out the inherent risk that can scare away support for individual companies.
“Right now, there is not much incentive for venture capitalists to experiment with investments in energy companies that may take 10 to 20 years to turn a profit, if ever,” said Gupta. “We are outside the venture capital world, which allows us to try out innovative new ideas.”
At the end of the two-year project, the goal is to obtain actual investments using the financing mechanism developed in this study to fund new technologies in energy.
“This is about as real as research can get,” Gupta said.
The project is one of 11 supported by $7.8 million in new DOE grants; Gupta will lead the only team from a university awarded one of the grants; the rest are investor and industry groups.
“What we’re trying to create could potentially be replicated in other sectors–such as biotech and pharmaceuticals–that share high investment risks and long periods of gestation before potential payoff,” said Gupta.
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“With the two-year, $600,000 DOE grant”
So they can’t even design the financial product without a government grant?
More egghead nonsense that will turn a bunch of taxpayer money into nothing.
Watch for it to call for “government investment” — code for subsidies.
Let the market do its thing — if there’s a real opportunity there, someone will find a way to make money from it without the need for government-funded “research” or involuntary “investment” from the taxpayers.
This is Obamacare for renewables. It is like the real estate mortgage crisis. You just have to hide these unhealthy companies in a package with a bunch of healthy companies, drawing unwitting investors. The climate crisis paradigm is certain to fudge the ratings and spin a wonderful story about the amazing opportunity to save the planet and make money at the same time! What could go wrong?
Jclarke341:
“Obamacare for renewables”
Of course. Jonathan Gruber carefully evaluated the intelligence of the necessary audience, and pitched the scheme accordingly.
Sufficient devotion to that taxpayer money pit by certain congress people still exists to prevent killing it. The “facts” that were used to support the idea are not easily removed from one’s shoes, even employing the farmer’s shuffle.
Michael Milken with hair.
So, in basic terms, the government is funding research into how to develop a tax-payer funded government sponsored ponzi scheme. Get new investors to pay off initial investors.
http://www.acfe.com/ponzi-schemes.aspx
Okey dokey!!
“There is an immense challenge in the new energy sector, with venture capitalists drifting away from clean technology investments in recent years, making it tougher for startups in this sector to prove their viability,”
You don’t say? Perhaps it’s all down to those pesky hockey sticks-
http://www.dailytelegraph.com.au/blogs/tim-blair/from-subsidies-to-landfill/news-story/7e5c2cb555f79a8467208e5cc02dd747
Well. As we learned here in South Africa. Don’t trust the Guptas with anything….
You got that right, Henry!
https://www.accountancyage.com/2017/09/27/kpmg-rocked-south-african-corruption-scandal/
Aren’t I always….
Humanity benefits more from engineering science than political hyperbole.
Without the energy provided by other sources renewables could not exist.
“….investments in energy companies that may take 10 to 20 years to turn a profit, if ever.” Ideas that are sound and represent a breakthrough in energy production will attract investors and gain rapid acceptance. Ideas that are still 10 – 20 years from profitability are in reality areas of research, not products requiring investment.
The Federal government has lots of research dollars to invest in basic research and development. Research is important for society — and should be supported. But asking private investors to waste money on iffy only-politically-correct ideas is foolish.
Sorry KIp, but the Federal Government has no wealth, other than what it forcible acquires from the people. The only thing it manufactures is more government. If some research promotes the general welfare of the nation, who gets to decide what research does that?
Every ‘financial product’ I have ever seen is a thinly veiled device for siphoning off cash resources from investors into the accounts of those who already have far more money than they need.
I wonder if they will encourage investment in small-scale nuclear reactors?
(a rhetorical question)