© Nomura International plc

Nomura Code Securities Limited

Circular Economy: Investor perspectives

Base Birmingham11th April 2013

Ken RumphNomura Code

kcr@nomuracode.com0207 776 1242

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Nomura Code, Nomura and advisers in general

Nomura: global (Japanese headquartered) investment bank: Nomura Code is the subsidiary of Nomura specialising in cleantech & life sciences

Investment banking means: financial research, advice, trading and asset management (the latter at arm’s length) across countries, sectors and asset classes (we don’t lend money)

We raise money for public and private firms in cleantech, writing research reports for investors, advising on M&A, for a (success-based) fee. Examples:

£9m raised for private cellulosic ethanol firm TMO Renewables (May 09)

£5m IPO of Ilika materials science co (May 2010, after £9m in Aug 07 pre-IPO)

£15m secondary issue for Ceramics Fuel Cells (micro-CHP) May 08

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Investor Context: Risk Aversion

Living in interesting times… The continuing after-effects of the financial crisis and recession of

2008 are making investors nervous of riskier assets Bank lending for projects is also scarce and cautious All of the riskier end of the investment spectrum is currently starved

of capital: IPOs, Venture Capital, new or cyclical companies

Cleantech a dirty word? Cleantech was often synonymous with renewable energy and other

sectors driven by public subsidy Budgetary stress means that anything ‘smelling’ of dependence on

government largesse is out of favour Project finance was also a significant support for renewable energy

and other cleantech capital investments (waste to energy, etc) but has become harder to obtain

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Investor Context: Attractive Themes

But small company investors are often guided by themes

Demographics – aging populations, growth in emerging coutnrues

Emerging market economic growth and wealth effects

Resource Scarcity: from water to oil to ‘rare earths’ and other

elements,

Energy (resource) efficiency: related to the above, ivnestments that

reduce waste/improve efficiency are seen as growing in

attractiveness

‘Waste’ is a waste of money

Regulation: governments still have policy goals, to be pursued by

regulation or taxation if not subsidy – sticks not carrots

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Circular Economy: attractions to investors

CE investments Often categorised as waste management or recycling… Seen as benefitting from resource scarcity, rising material and

energy prices (so returns on investment improve over time)

‘The anti-subsidy’ Costs of treatment are rising, ‘free’ disposal is a subsidy that is

being withdrawn, Landfill space is a scarce resource, and a source of government

revenue Taxing ‘bads’

The ‘anti-planning obstacle investment’ Investments like windfarms, nuclear or waste-to-energy schemes

were often prone to lengthy planning obstacles Avoiding ‘incinerators’ or landfill also avoids these planning hurdles

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Circular Economy: hurdles to overcome

But there are obstacles

All new technologies are seen as risky – demonstrations and pilots

are needed to prove them at commercial scale

Particularly if bank finance is needed ‘bankability’

Inputs: are the sources of material secure (price and volume)?

Outputs: are the prices and demand for outputs secure?

Regulatory regime is stable and reliable?

Planning is still an obstacle?

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Pitching: Less Greenery. More Greenbacks

Focus will tend to be on commercialisation – not technology or

green credentials.

Who is going to buy your product/service? Why? At what price versus competition? What are the economics for

the customer? How will you find and convert your customer? Do you understand the

distribution channels, and the motives of the participants? Why will they buy from you, a small early stage company?

Market segmentation may be appropriate? Niche sales first, versus the mass market?

Who is your head salesperson? Timetables – enthusiastic but realistic

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Pitching for investment: The Value of Partners

What is the core skill of your company?

Therefore, what don’t you need to do yourself?

Partners can add to your proposition Manufacturing – a frequent option is to outsource, probably after

prototypes or small numbers have been produced (Vphase) Academic – can provide ongoing R&D, credibility (Modern Water) Governmental – someone in your corner on policy? (Eaga) Distribution – the most difficult part of commercialisation? (various) First customers as partners (Zenergy)

‘Industrial’ investors Provide skills, credibility, routes to market – which may be worth more

than money (examples from marine sector) But may limit exits/customers

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Pitching for investment – Questions That Need Answers

Why isn’t someone else doing this already (if its so great)? Or, who are your competitors, and how do they compare?

Why will customers buy your product/service? Explain the economic value proposition!

How do you (and hence the investors) make money? Explain your business model!

Why are you selling (part of) your company? How long are VCs, directors locked up for?

What policies, subsidies, prices affect your business? With what sensitivity

What worries you? What could go wrong? What are the upside/downside risks?

(When) will there be value-enhancing newsflow?

What’s the exit (realism and flexibility – IPO, trade sale)

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What’s in fashion? Global Cleantech 100 #GCT100

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