What’s next for Malcolm Turbull in Clean-tech Venture Capital?

The former leader of the Coalition, Malcolm Turnbull has announced his intent to become more involved in clean-tech venture capital once he leaves parliament.

He brings both knowledge and experience from investment and environment perspectives, and may breathe life and interest into a sector which could do with some more oxygen and daylight:  there isn’t much VC in general in Australia, and very little that is involved in clean-tech.

Where Mr Turnbull will direct his focus, and by what means, are therefore subjects of interest.

For public integrity purposes he has largely parked his financial interests at arms length, although interpreting the functionality of the various investment vehicles in which Mr Turnbull has an interest by examining the Register of Members Interests is not straight-forward. 

One might anticipate that one or more of the private vehicles will likely be the early means by which any investment will be channelled – perhaps in partnership with others as he has done previously.

From glancing at the Register, the Directorships that Mr Turnbull currently holds in private companies seem predominantly focussed on ‘conventional’ technology companies.  This perhaps echoes his previous interest in that space and a largely unspectacular foray into the dot-com boom, including the establishment of KHATZ Capital in 1999 (with friends and partners including, strangely, Rodney Adler) – notwithstanding his previous success in the early web company Ozemail with his friend Trevor Kennedy. 

Fortunately Mr Turnbull will not face the difficulty that others face in attempting to constitute a VC fund in Australia: access to capital.  Through his own resources, and drawing on those of personal and institutional contacts, he is unlikely to struggle to draw together the capital he requires.  That’s one major hurdle overcome. 

This brings us to the next point: Mr Turnbull will face the same problems that others have, however: formulating a sensible investment strategy for the sector.  Any capitalised venture capital group focussed on clean-tech in the Australian market will inevitably be mobbed, no matter what the stated strategy.  He may seek Y2-5 exits, and 50% returns, while deploying sizeable expansion-round-sized investments into capital efficient businesses – vanilla VC characteristics, no matter what sector.

Options will be whittled down, while transaction efficiency must be maintained.

What I am sure he will be wary of, however, is letting his personal convictions cloud good business sense.  Hoping that something is so is not the same as it being so. 

Many involved in clean-tech business in Australia have fallen into this trap in the past:  policy risk is perhaps the outstanding risk in relation to renewable energy and low-emissions businesses and technologies.  Those that have moved ahead of even common-sense legislation have been badly burnt in recent years.

The straight-forward MRET expansion condoned by the electorate in the 2007 electoral win proved too hard for the ALP not to royally mess up, leading to a collapse in the REC price and in investment – a problem which persists despite a recent bounce in prices associated with a Governmental statement of intent to reform the REC market.

The promise of an Emissions Trading Scheme, first proferred by the Coalition in 2003 and supported later by Mr Turnbull in the Environment portfolio and later in opposition (his undoing – for anyone not up to speed – was his support for the ALP version of an ETS, the ‘Carbon Pollution Reduction Scheme’ or CPRS) has still not seen the light of day.  While no-one has much time post-GFC for the plight of bankers and traders, many financial services firms have seen their ahead-of-the-curve capacity investments in that space burnt to ashes (as well as solutions providers such as engineering groups).

Mr Turnbull is likely to have a clarity of vision of issues tempered by his portfolio experience.  His work on the Murray-Darling basin will have prompted thought about a future of water conservation for both agri-industrial and municipal purposes.  His strong support of market mechanisms to tackle climate change will have opened his eyes to deployment and enabling solutions to reduce greenhouse gas emissions.

Whether Mr Turnbull is personally convinced by some of the policy positions on clean-tech sub-sectors previously supported in his public capacity is not clear – let alone whether he might consider taking a stake in such an enterprise.  Coalition support has previously been vocal for technologies such as clean coal, biosequestration actions including biochar, and energy efficiency technologies for buildings.

Lack of meaningful resource pricing for water, energy, waste and emissions, and broken institutional incentive structures, continue to put pay to many apparent opportunities.

Investment in nascent low-cost emissions abatement products which do not have  obviously convertible co-benefits is therefore not necessarily sound strategy. 

There are investment propositions that transcend or can transition short-term policy and price uncertainty.  However, identifying, accessing, and developing them in an often technology-dependent and globally competitive environment characterised by rapid competitive destruction, will not be easy. 

VC is no place for the faint-hearted, but Turnbull has proven his courage and has the necessary skills and experience to create some much-needed success for the nascent industry.  We will follow news of his activities with strong interest.