This week’s Green Scene column in Crain’s Chicago Business: 11 wealthy families team up to invest in clean tech

Eleven wealthy families are now scouting for investment opportunities in the clean-energy sector – and the investment syndicate they’ve formed has already inked some deals.

The Cleantech Syndicate was created in 2010 but only announced its formation late last month after it accumulated a large enough membership and demonstrated some investment clout. That’s according to Ward McNally, managing partner of Chicago’s McNally Capital LLC, one of the family fund members and a co-founder of the syndicate with Black Coral Capital, a clean-energy investment firm with offices in New York, Boston and Montreal. Mr. McNally, a member of the Rand McNally & Co. clan, is overseeing the Cleantech Syndicate out of his Chicago office. He wouldn’t identify the other participating families.

 

Ward McNally

Since the syndicate’s launch, two new investments have already closed and three are currently pending, Mr. McNally notes. Syndicate members aren’t pooling their capital into one common fund but will be sharing information so they can benefit from a broader view of investment opportunities. They intend to invest $1.4 billion in the clean-tech sector over the next five years through their own separate family funds.

McNally Capital, Black Coral Capital and other participating family funds have previously invested $1.2 billion in various subsectors of the clean-tech industry over the past five years. Those areas include wind and solar, energy efficiency and water. There’s also been lots of interest in smart-grid technology, geothermal and biogas, Mr. McNally says.

So far, 11 U.S. family investment funds representing a collective net worth in excess of $30 billion are part of the national syndicate, and there are plans to increase that total to 15. A separate European affiliate is in the works for later this year. The syndicate declines to identify the families participating.

Crain’s caught up with Mr. McNally to learn more about the syndicate’s objectives and how local clean-tech companies might get on the syndicate’s radar.

Crain’s: What role do you play in overseeing the syndicate?

Mr. McNally: McNally Capital is acting as the hub of the spokes of families in the syndicate. As managers, we’re sourcing, screening transactions, developing strategic relationships with corporate partners and investing in this space as well. We have a dedicated web portal where deal flow is shared. Everyone in the syndicate gets access to that information and then makes their own investment decisions.

Crain’s: How did the managers decide which families to invite into the syndicate?

Mr. McNally: There are no two families (in the syndicate) that invest exactly alike. We didn’t want to have a bunch of families that have the same investment policy toward solar or wind power, for example. We wanted very different investment profiles. The families already have experience in almost every subsector of clean tech and invest in everything from early-stage to late-stage companies.

The common theme is they have invested capital in the clean-tech sector, have a team in place and have capital directed to future investments in clean energy. By having all these different knights at our round table, we have a group that can all benefit from each other’s investment ideas. It runs wide and deep, instead of narrow and deep.

Crain’s: Do you already have investments lined up for Chicago-area or Midwest companies?

Mr. McNally: There are two or three companies that are already within the portfolios that are based in the greater Chicago area, but no new investments have been made locally since April 2010. There was one recent investment in Indiana in the biogas subsector.

Crain’s: Do you think there’s a good crop of local clean-tech companies already around to invest in?

Mr. McNally: It’s definitely increasing. The awareness to the base of what’s here has increased substantially, a lot of that is thanks to Amy Francetic and the Clean Energy Trust (she’s executive director of the organization).

Crain’s: What are the prospects for more private-equity investments in the local clean-tech sector in the near term?

Mr. McNally: There’s been increasing activity in Chicago and generally in the Midwest in this sector for a number of reasons: large prominent universities putting out new technologies in solar, advanced materials and energy efficiency. Having Argonne National Labs in our backyard is a huge contributor to the energy sector in general. This area has a lot of activity in bio-agriculture, bio-mass and bio-fuels so people think of Chicago as a point of reference for those types of transactions, too.

And it’s amazing how the Groupon effect is bringing in venture-capital dollars in general, not just for social media.

Crain’s: Did these family funds join the syndicate to pursue their interests in sustainability or a desire to promote a shift to renewable energy sources?

Mr. McNally: Their objectives are as much about (spurring) new technologies as it is about good return on investments. As a result of all the funds being large scale, some families have lots of activities going on in other sectors and many also own large operating companies. One reason some are interested in clean energy is it’s also a driver for other things they’re doing within their business operations.

For example, there‘s a family that owns a tremendous amount of commercial real estate and they’re interested in energy efficiency. They look at new technologies to implement into their buildings to reduce their costs or achieve certain LEED (Leadership in Energy and Environmental Design) standards, and reduce emissions too. At the same time, the family believes they’d benefit by having an equity stake in those companies.

Also, families started to invest in clean-energy equity funds, but they felt there was a mismatch in the duration to achieve their own investment objectives. Typical private-equity funds might hold an investment for four to five years. Family funds may want to hold onto stuff longer, or indefinitely. Some solar projects might have 15- to 20-year horizons, which makes sense for some of these family funds to invest in directly.

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This week’s Green Scene column in Crain’s Chicago Business: How one neighborhood is pushing the sustainability mantra

About 40 businesses in Chicago’s Andersonville neighborhood are participating this week in the community’s Green Week festivities.

Local retailers, restaurants, and other businesses in the area are organizing, sponsoring and running many of the 50-plus events and activities taking place July 12-18. Events include local chefs offering cooking demonstrations of farmers market fare, art projects using recyclables organized by Sifu Design Studio, an eco-storybook activity at Green Genes boutique, and composting and rain barrel demonstrations. The Green Dream Group, a home energy audit firm, will offer tips on improving energy efficiency for homeowners, and i-Go Car Sharing, a non-profit short-term car-sharing company, is showing off a plug-in hybrid vehicle at a tent on North Clark Street throughout the week. Many neighborhood residents are organizing activities as well.

The second annual event is the brainchild of the leaders at Eco-Andersonville, the sustainability initiative within the non-profit Andersonville Development Corp.

Aside from Green Week, Eco-Andersonville’s ongoing services include a green building incentive program and a sustainable business certification program to encourage local business owners to incorporate more green practices into their operations, according to Brian Bonanno, the group’s sustainable programs coordinator. Eco-Andersonville also established a streetscape recycling program for area residents and shoppers in its commercial area. Since 2009, the group estimates the aggressive recycling effort has diverted more than nine tons of recyclable waste from landfills, he said.

Crain’s asked Mr. Bonanno and Ellen Shepard, executive director of the Andersonville Development Corp., how Andersonville and its businesses are benefiting from the Green Week happening and how they promote local shopping all year long.

Crain’s: What does it mean to be a sustainable community?

Ms. Shepard: In 2005, Andersonville made a choice to focus on being local as a way to be economically sustainable and that has worked for us. Most of the business owners here live in the neighborhood, and environmental sustainability was a natural outgrowth of that because they care about where they live and work.

Andersonville is a tight-knit community where the residents are dedicated to supporting the businesses and vice versa. Because of that, the businesses continue to thrive, and the residential community thrives because we have this wonderful retail community that people want to be near. In other neighborhoods vacancy rates are up, but not here.

Crain’s: What’s the goal of Green Week?

Ms. Shepard: The goal is to highlight the businesses’ and residents’ commitment to sustainability, both environmental and social. We encouraged them to come up with their own program ideas to show how sustainability is part of their business practice, their life and their work.

The ultimate goal is to show the different facets of sustainability. We have enough events with so much diversity that could engage anyone who attends. We want people to leave feeling they have a role to play in a more sustainable future.

Crain’s: How are businesses participating in Green Week?

Mr. Bonanno: We have local businesses sponsoring the overall Green Week, including Know no Limits (a neighborhood gym), A and N Mortgage Services, and Gethsemane Garden Centers. Many also are coming up with their own events, hosting and inviting organizations outside the neighborhood to show a film, do a workshop or a cooking demonstration. Transistor, a local music/book store/art gallery space, teamed up with non-profit Local First Chicago to host a film screening of “The Economics of Happiness”, a film about building a life based on relationships, not on stuff. The event highlights the company’s commitment to sustainability and should also attract foot traffic into their store.

Three area businesses, including Hamburger Mary and Mightybytes (a media design company), sponsored an Amateur Brew Competition where they invited 15 home brewers to enter a competition at the restaurant for the best locally-made beer. They’re asking Green Week attendees to sample all the beers and choose a winner. And a neighborhood running store, The Runner’s Edge, organized a community 5K run and walk that will happen on July 17. The list goes on.

Crain’s: Can you measure how neighborhood businesses benefit from Green Week?

Ms. Shepard: The businesses get some bump that day, financially, and people come back later to shop as well. More people are seeking out businesses with a conscience and I think that will help those businesses in the long run. The less tangible part is that this event helps build the vibe of Andersonville.

Crain’s: What can other chicago neighborhoods — and its businesses in particular — learn from this Green Week event?

Ms. Shepard: Any business organization is always looking for ways to support and promote it’s businesses. Green Week is a great way to highlight that you care about your community.

Energy is only going to get more rare and more expensive. Our whole culture and world is going to be less consumer-driven and more relationship and community-driven. Going green is the way of the future and the sooner people jump on the bandwagon, the sooner they’ll be building supports into their business district that will sustain them in the long run. In Andersonville, we believe this is the right thing to do.

 

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This week’s Green Scene column in Crain’s Chicago Business: Germans eye Chicago for renewable energy expansion

Chicago and the Midwest could see an uptick in renewable-energy business with a German flavor if goodwill forged at a recent gathering translates into real deals.

That optimism was shared by many among the 120 attendees at a recent daylong meeting in Chicago between business executives, policy experts and government officials from Hamburg, Germany, engaged in the renewable-energy sector and a group of U.S. counterparts in the Chicago and Midwest region. The green technology forum enabled business and government officials from both countries to explore the potential for new partnerships and expansions of existing businesses in wind energy, solar power, green building and other areas.

The Hamburg delegation included senior executives from Nordex, Vatterfall, Siemens and PowerWind, as well as Frank Horch, Hamburg’s minister for economic affairs. American participants included representatives from the Chicago Southland Wind Council, the Illinois Department of Commerce and Economic Opportunity and Karen Weigert, the city of Chicago’s chief sustainability officer. Panelists discussed challenges that both Northern Germany and the Midwest U.S. region face in the green technology sector. Other topics focused on green building and environmental technology.

Mark Tomkins, vice-president of the German American Chamber of Commerce of the Midwest in Chicago and a moderator of two panel discussions at the conference, said the German delegation left the meetings armed with new contacts and updated regulatory information to share with their business partners and other government officials back home. While Chicago has been on German companies’ radar for years — especially in the wind energy and green buildings specialties — Mr. Tomkins predicts there could be increased activity because the German participants who return home will create a new buzz about the potential for success in Chicago.

“One of the biggest obstacles to investment here is getting out the message to German businesses that there are good opportunities here,” Mr. Tomkins said. “Some other states are better at courting foreign direct investment, and we have to promote our story more aggressively.”

Since Chicago is already considered a player in the wind-energy business and is engaged in green-building projects, Mr. Tomkins expects most of the new business development from German companies coming to the region will occur in those two areas. He added that new rules in Illinois for solar carve-outs as part of the state’s Renewable Portfolio Standards will boost investment in solar energy.

German-owned subsidiaries in Illinois already employ 36,000 workers, according to the German American Chamber. A recent survey this spring found that 43% of the German companies already operating across the U.S. in renewables are planning to expand their workforce by at least 10% annually over the next five years.

“Chicago is a really favorable market for Germans because of O’Hare Airport and because we’re right in the middle of the wind corridor of the U.S.,” said Mr. Tomkins. “The city also has access to talent — German companies need highly skilled workers in manufacturing and engineering. There’s lots of financial and managerial talent here, too.”

He added that renewable-energy companies look for a supportive political framework when choosing where to invest in expanding or establishing new outposts. “Illinois’ RPS and the Chicago Climate Action Plan really matter to companies active in those industries,” said Mr. Tomkins. “Chicago also is a city that certainly has welcomed the green building community with open arms.”

Hamburg and the northern region in Germany have a high concentration of renewable-energy and other green companies. In fact, the EU Commission named Hamburg the European Green Capital 2011.

John Dunlop, a senior technical programs manager at the non-profit American Wind Energy Assn. and one of the participants that day, said location is a critical factor that guides where wind energy companies put down roots. A number of wind energy firms are basing their headquarters in Chicago because of proximity to good wind energy resources in the region and lots of activity in the corridor stretching from North Dakota down to Texas.

“Suppliers of wind energy technology like to be close to the wind farm installations for easier transport of materials,” Mr. Dunlop said.

While the U.S. currently has 40 gigawatts of installed capacity for wind energy throughout the country, the seven-state area around Chicago has 3,000 GW of capacity, and most of it is still untapped, Mr. Dunlop pointed out. He argued the opportunity for expansion — and German investment — are enormous in the Midwest region, in part, because an increasing shift to renewable energy is expected in Illinois (and other states) thanks to state RPS laws that will require greater reliance on wind and solar power in the years ahead. In addition, the U.S. Department of Energy estimates wind energy installations throughout the U.S. will expand tenfold by 2030 and could potentially supply about 20% of the country’s total electricity consumption at that time.

A smattering of German-based companies in this sector already have U.S. outposts nearby, including Nordex USA in Chicago and Winergy Systems Drive Corp. in Elgin.

Northern Germany is considered at the forefront of wind technology on the global scene, but it has already tapped close to half of its own total wind capacity, according to Mr. Dunlop. And the option for alternative-energy companies in Germany to diversify or expand into nuclear energy at home is drying up as well. The German government recently announced after the Japanese nuclear reactor disasters that it would begin phasing out construction of any new nuclear energy operations within its own borders.  Those are some of the reasons why some German companies are looking more aggressively for new offshore wind installation opportunities, including the U.S., he noted.

“Germany — and the rest of Europe — still intends to substantially switch to renewable resources, but they won’t be able to increase dramatically to on-land installations there,” said Mr. Dunlop. “They also know that we’re energy hogs in the U.S., and there are tremendous opportunities here for them as we move toward using more clean-energy resources.”

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