Over the last few months, the eyes of investors of all types have been fixed on the possibility of a double-dip recession -- and the corresponding impact on their portfolio companies. At Chrysalix, we invest based on long-term fundamental advantage, and try not to be swayed by short- or even medium-term market gyrations.
Still, the recent months have sharpened the debate at Chrysalix -- if we are heading into an extended period of slow economic growth, what sectors are likely to thrive, and where should be we placing our investment dollars?
Clearly sectors that require large amounts of government support should be avoided, although you could argue that this has always been the case. Many biofuel and solar investments fall into this category, although by no means all of them. Companies which sell products with long paybacks may also struggle to find customers and investors in a slow economy, although capital-light, energy efficiency-related providers may find that demand for their products and services actually increases as customers struggle with energy costs.
At Chrysalix, we are particularly bullish on companies operating in the waste sector. Companies that can help customers alleviate the waste disposal pain, while providing additional sources of revenue, will do well in this economy. For example, we have invested in Agilyx, a Portland-based company with a unique technology that converts all streams of waste plastic into high-value, synthetic crude oil. Not only does this enable a source of locally produced crude oil, but the company’s systems also solve the problem of escalating tipping fees. Reduced waste means reduced waste charges. With the amount of waste plastics being sent to landfills showing no sign of slowing down, with the costs of operating landfills increasing in line with tightening legislation, and with oil prices remaining stubbornly high, this is a company set to do well even during these challenging economic times.
Another less obvious area that we like is controls for Solid-State Lighting (SSL). While the broader SSL industry is beginning a period of consolidation, controls remain interesting because their intelligent use enables faster product iterations and lower development costs, as well as increased functionality and differentiation -- all things that are valued in a tough economy. We invested very early in Light-Based Technologies (LBT).
There are other examples, but overall, we believe that any period of slow growth, however long, will not change our investment thesis, which is to find and support great cleantech companies that are developing products with fundamental competitive advantage backed by solid economics.
Although we are definitely viewing certain sectors with some trepidation right now, overall we’re bullish on the right type of cleantech investment.
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Osman Malik is an Associate at Chrysalix Energy Venture Capital.