Intel Capital warns of 'cleantech' bubble

The president of Intel Capital, one of the biggest venture capital investors, has warned that his industry is on the brink of another dangerous asset price bubble, particularly in so-called “cleantech” environmentally friendly technologies.

Arvind Sodhani told the Financial Times: “The biggest challenge for venture capital companies is when valuations get out of whack – this always ends in pain, and we’ve started to see a little bit of that in the recent past.

“It is particularly the case in cleantech/greentech. These areas are hugely overvalued for their fundamentals. The credit crunch has made it slightly better but not much.”

Clean technology spans a range of industries including alternative energy, energy storage, recycling and waste management and advanced new “clean” materials.

Total “cleantech” investment by all groups including venture capitalists was estimated at $94bn last year, up from $75bn in 2006, according to New Energy Finance, a consultancy.

Mr Sodhani compared the rush to invest in areas such as solar power and waste management to the overheating of the internet boom, when venture capitalists were burnt by hundreds of failed investments after the dotcom bubble burst.

Clean energy accounted for 7.4 per cent of all US venture capital investment last year, up from 1.1 per cent in 2003, according to the National Venture Capital Association and PwC.

However, Mr Sodhani said cleantech would still be a key focus for Intel Capital, especially in the wake of rising energy costs. “The way energy has been used and consumed has been grossly inefficient because we lived in an era of cheap energy.

“Technology is going to be deployed across the energy consumption food chain to help make it more efficient,” said the boss of Intel Capital, which has invested more than $6bn in over 1,000 companies and 40 countries since it was created in 1991.

Mr Sodhani said Intel Capital’s portfolio, which was valued at $2.6bn in September 2007, had produced its highest returns in recent years from India, followed by China, then the US and finally Europe.

He said this explained why venture capital was dominated by global funds able to straddle the globe. “The venture capital industry has discovered that innovation and entrepreneurship takes place all over the world and not just in Silicon Valley or Route 128 in Boston.”

The main focus for Intel Capital in recent years has been to invest in the high-speed Wimax internet technology to ensure the mobile spectrum is opened up to all users, rather than being dominated by different proprietary technologies.