Where to invest green money

Daily Pilot

More and more Orange County entrepreneurs are starting clean-tech ventures, and F. Henry Habicht II, or Hank, is the man they all want to meet.

Habicht, 57, is a managing partner at Costa Mesa-based Sail, the leading clean-tech investment firm in the county. He moved here from the Washington, D.C., area in August. Habicht combines experience in the highest levels of government environmental regulation with a long history in clean-tech investment.

Habicht's resume is sterling: He was the chief operating officer of the Environmental Protection Agency during the first Bush administration and was President Reagan's assistant attorney general in charge of the environment and natural resources at the U.S. Department of Justice. In the 1980s, he was the vice president of the firm that managed the Environmental Venture Fund, one of the first successful green funds. Since then, he has led both for-profit and nonprofit environmental consultancy and investment groups.

At Sail, Habicht decides which fledgling companies are worthy of venture capital. His firm specializes in three sectors: energy, water and green innovation (one that might make alternatives to oil spill cleanup chemicals, for example).

Habicht spoke with OCLNN's Mike Reicher to discuss the future of the clean-tech industry.

OCLNN: There's this so-called double or triple bottom line for clean-tech companies. When you're looking at an investment, how do you balance the social and ecological benefits, versus the profitability of a company? Hank Habicht: The really over-arching priority is that a company has a strong business model and looks like it will be profitable.

The idea of triple bottom line is kind of (a) chicken-or-egg issue: If you act sustainably — meaning that you pay attention to profits, people and the environment — then will you be a more successful company? Or is a company that successfully runs on a sustainable basis — meaning it manages resources effectively and is law-abiding and ethical — going to have a positive impact on the environment and people?

It's an evolving science to understand what about sustainability is really sustainable.

OCLNN: What are the top three factors that you look for in a clean-tech company when you're making an investment? HH: I would say that the top three things are: a high-quality team, people are very important; a strong customer focus is also very important because you could have a great technology, but if it's not focused [on] solving customers' needs in a way that they'll pay for, you're not going to have a viable business; and then, of course, a technology packaged in a business model that really solves problems.

OCLNN: What do you think can be done to create more jobs in this sector?

HH: Jobs are going to follow investment, and you maximize investment when commercial and financial institutions — including private equity firms, banks and even corporate finance groups — see a sector as creditworthy and bankable.

Clean-tech is new and a lot of these technologies are untested, so traditional sources of financing are a little bit skeptical at first. This is where government programs come in, like tax incentives, investment tax credits, loan guarantees, grants, research grants — things like that.

Having some government funding available gives the company an opportunity to prove the value of its technology and to get some customers to adopt it. It gets the company across what some people call a "valley of death," which is proving that the product is something customers want to buy, and then they become commercially financeable. So that's all my way of saying those things are critical to jobs.

OCLNN: With your experience in the EPA and your perspective in the investment community, how do you think the Gulf oil spill is going to affect demand for alternative energy sources? Will there be a change in perception and consumer attitude that will shift demand? HH: I was at the EPA when they had the oil spill from the Exxon Valdez, and people thought that would have a major impact. It had very little long-term impact on demand for oil.

In this case, it's in a part of the country that's more visible, that has more sensitivity, especially after Hurricane Katrina and other natural disasters, and people know the Gulf has had a lot of these platforms, so it may have an impact.

One of the things after the Exxon Valdez spill was that the business of developing oil spill cleanup technologies actually took off a bit. I remember we at the EPA were testing out oil spill cleanup technologies.

So history would tell me that [the Gulf spill] is probably not going to be as big an impact as some people would like to see, but it's telling me that we don't have enough response and cleanup technologies for spills. That's an issue.

The things that are really getting to people are the security issues related to imported oil. Because we import so much more oil than we produce, people are looking for alternatives to oil for a lot of reasons.

OCLNN: When it comes to the Gulf oil spill, what can the government do differently from what it's doing now? HH: It's both in the government's interest and the industry's interest to self-police more, and it's in the government's interest to be sure its programs are as solid as possible and nobody looks like they're giving anybody a break, in terms of safety and responsibility.

OCLNN: And speaking of government, Orange County actually lags behind neighboring counties when it comes to its proportion of energy from renewable sources. Why do you think that's the case and what can be done here? HH: With the entrepreneurial base here and with the kind of work going on in the universities and research institutions around here, I would think that it ought to be a good proving ground for renewables.

Part of it is probably making sure people are educated about the availability of renewables and the fact that they really work, and the availability of financial incentives to use renewables. There probably could be a more concerted effort to focus on those things.

In our discussions with Orange County officials, related to some of our companies, I see really progressive attitudes and open minds about promoting clean technology here.

OCLNN: Which Orange County clean-tech companies do you invest in? HH: MicroMedia Filtration, an energy-efficient waste water treatment company

Flex Energy, which converts methane and other gases into electricity with very low emissions.

Water Health International, which manufactures water purification systems for rural communities here and overseas

OCLNN: Why should people in Orange County care about clean-tech applications in developing nations? HH: First, if any company that is based in Orange County or has a significant presence in Orange County wants to maximize the markets for its products, these are the fastest-growing markets in the world.

We expect in the next 20 to 25 years that the global demand for energy will double and that 80% of that growth and demand is going to come from the less-developed countries, so there is going to be literally trillions of dollars being spent.

Also, when ideas and technologies take hold in these emerging economies, it can only help with the perception of America overseas and respect for America overseas. I do think that one big advantage that Americans still have in the world is our ability to innovate and take innovative ideas and build them into complex business models.

A lot of manufacturing has moved overseas, but innovation and entrepreneurship are still very much home-grown advantages we have. I think California, and especially Orange County, has more than its fair share of innovation and entrepreneurship. [O.C. residents] should want those advantages to be translated into business success around the world.

I get to the last and certainly not least point: I feel a great sense of satisfaction when I'm involved in anything that solves major problems, especially solves problems related to human suffering. Our company Water Health, for example, is already serving 3 million people in countries like India or many other countries in Africa.

There, some two-thirds of the hospital beds are filled with people who are just sick because of bad water, and millions of children die every year as a result of bad water.

Anybody who's involved in an enterprise that can have any impact on solving those problems should feel great about it.

OCLNN: Anything that you want to add? HH: We are proud to be a pioneering clean-tech investment firm here in Orange County.

We think it is a great home, and we think there are a lot of great ideas here and sincerely want to encourage entrepreneurs or anybody who knows of great ideas to let us know.

This interview has been condensed and edited for clarity and brevity.

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