A year after it closed its $120m fourth fund, corporate-backed venture firm Enertech Capital Partners is in talks with additional strategic partners as it seeks to continue its 'wellhead to wall socket' funding strategy.
US-based venture capital firm Enertech Capital is in talks with prospective corporate partners that would join a range of strategic limited partners in its fourth fund, according to managing director Wally Hunter.
Enertech closed its Enertech Capital Partners IV fund at $120m in September 2013, securing contributions from LPs including energy company GDF Suez, waste services provider Waste Management, engineering, project and construction management company Hatch and oil recovery services provider Newalta. It is also in talks with additional strategic investors over additional contributions.
“The ones we are talking to right now are in a couple of other areas,” Hunter told Global Corporate Venturing. “Water, and there are some more, what I would call foreign strategic corporates who want exposure to the US on the energy side.
“We are talking to a bunch of players out of Korea and Asia, guys that want to get access to North American technology, there are some oil and gas technology companies we are talking to out of Calgary, and [vice president of investments Anne-Marie Bourgeois] is talking to some strategics out of Europe and South America. Most of them have the view that Enertech can provide a window on technologies for anything around energy, oil and gas.”
Founded in 1996 as a spin-out from utility Atlantic Energy, Enertech focuses on energy technology, investing along a continuum Hunter describes as “from wellhead to wall socket”. It typically provides between $3m and $7m as a first investment, reserving a similar amount for follow-on funding.
Atlantic was one of the largest investors in Enertech’s first fund, establishing a pattern of investments from prominent corporates in the energy space.
“From there we’ve had a multitude of strategic LPs,” Hunter said. “In Enertech 2 about 65% to 70% of that fund was electric utilities. We saw the value in getting access to technologies.
“Now we are investing out of our fourth fund and between those funds we have managed about $500m in capital and 66 investments. In the new fund we have done eight new deals across Canada and the US, and there are a series of new strategic investors that came in as limited partners.”
In addition to providing capital for Enertech, its corporate LPs can also be consulted on potential deals and used to help on due diligence, though they do not dictate the direction of the firm’s investment strategy. What they do get is an early look at the technology and an opportunity to form links with the firm’s other LPs.
“They become a pretty good resource for us to evaluate deals,” Hunter said. “If there is a deal in Waste Management’s area of expertise we will go to them and say, ‘can you help us evaluate the technology’ or ‘what are your views from a customer perspective’.
“We get access to a broad North American dealflow that it would be hard for those corporates to try and replicate, just because they have limited resources [and so cannot] focus on technology scouting.”
Enertech is about 45% drawn on its fourth fund, and if it keeps investing at its present rate it will look to begin raising a fifth fund in late 2016 or early 2017. The firm aims to maintain a diverse range of backers, and will continue to target a mix of financial LPs and corporate strategics across the energy technology space.
“We stuck to the energy tech theme as a way to differentiate Enertech in the market,” Hunter explained. “I think financial LPs saw that as part of their evaluation of our strategy.
“You don’t want too heavy a weighting, you want a good balance between your strategics and financial investors,” he added. “In some cases strategics can be interested in a sector one year and then three years later they decide on a strategy change and may be out, so it is good to diversify as well. You want to make sure you have follow-on LPs that are both financial and strategic.
“The financial investors also like the fact we have a series of strategics in the fund. It validates for them the fact it is not all financial. They like to see both types of investors in the fund, and the value-add those strategics can provide to help the portfolio be successful just increases the odds we are going to get a better return.”
– Photo of Wally Hunter courtesy of Enertech Capital
