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Interview with Israeli cleantech VC Astorre Modena of Terra Ventures

[Author: | Date: 1 Feb 2010 ]

    Astorre Modena is a co-founder and general partner at Terra Venture Partners, a venture capital fund targeting opportunities in Israeli cleantech companies at the seed and early stages.

    Previously, Astorre was a Principal at Israel

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    Seed Partners and prior to that he was with McKinsey & Co., based in Paris, where he consulted to leading Italian, French and Israeli manufacturing and financial corporations.

    Astorre holds a B.Sc. in Physics and Outstanding Students Program from the

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    Hebrew University of Jerusalem and a Ph.D. in Plasma Physics from Imperial College in London. He was a researcher in the laser-plasma physics department at Imperial College in London and Ecole Polytechnique in Paris working in their nuclear fusion energy program.

    I went to meet Astorre for this interview at the Terra Ventures offices in Jerusalem.

    On Terra Venture Partners…
    Avner So Astorre, thank you for hosting me at your offices to conduct this interview. I know you are a busy man and we really appreciate it at CleanIsrael. Why don’t you start by telling us a little about Terra Ventures?
    Astorre Terra is a dedicated cleantech fund established in 2007 run by myself and Dr. Harold Wiener and focused on seed and early stage start-ups in Israel. We invest in all the
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    classic cleantech sectors with specific focus on energy, renewable energy, energy efficiency and energy storage with few out-of-the-box exceptions.

    Avner You’re now entering Terra’s third year of investment – how did you get through the storm?
    Astorre Terra was relatively lucky to have closed before the crisis. We started investing in the third quarter of 2007 but did only three small investments before the collapse of the financial markets so you can say it’s been a very interesting period.

    Because of the way we built our companies we were relatively less impacted than other funds. From the outset we start our companies on a very lean budget and that allowed us to fund the companies for longer without having to cut on personnel – this created a much better environment. Though it was difficult, we managed to raise external funds for our two initial companies even during the worst times and that allowed our companies to progress nicely even through the tough times.

    Avner Have you been investing in new deals or re-investing into your portfolio companies?
    Astorre We invested more in new deals (six just this year) because we believe that economic downturns are the best times to invest in new companies. Core valuations and competition are down, it’s easier to recruit new talent, easier to do things cheaply (materials, equipment) and entrepreneurs are more focused so you can create better companies. Financial planning in these cases is key as it is crucial to reach significant milestones with limited resources since it is going to be difficult to raise outside money.
    On the Israeli cleantech industry…
    Avner Cleantech is considered a capital intensive industry – how does your strategy align with your portfolio’s need for more capital?
    Astorre Cleantech is an extremely wide and broad enough industry that you can find significant billion dollar sub-sectors which are capital-efficient where you don’t need the level of capital that you might need for big projects companies and that is where we focus our investment strategy.

    Our model is all about capital-efficiency and I think that Israel is also very good at doing more with less and this has been proven in the high-tech industry.

    Avner How would you summarize the current situation of the Israeli cleantech industry?
    Astorre In general there is a systematic lack of money especially on the early stage side because many of the angels and some other investment groups have disappeared so most of the deals are done by three dedicated funds and a few by the generalist funds. On the other hand, we are seeing many more deals in Israel then in the past so the result is that there are many worthy companies out there that have difficulties in raising money.
    Avner Is there a serious and competitive cleantech industry developing in Israel?
    Astorre The potential is out there but Israel needs a critical mass of funded companies in order to develop a healthy and competitive industry. Since more than half the companies won’t survive we need to have more funded companies so that we can reach that critical mass.
    Avner Where do you think the capital needed to fund the industry will be coming from?
    Astorre The first thing is that Israeli generalist VC’s need
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    to get more seriously involved and committed in cleantech. In the US and Europe, most generalist funds are developing a serious cleantech focus and expertise within their establishment. I am not talking about someone who once a week looks at opportunities, that won’t work. In Israel we are seeing that the generalist VC’s are still investing very opportunistically with no clear strategy.

    The second thing I’d like to see is more foreign players in Israel. I believe the trend is already happening; there is great interest from foreign investors though unfortunately because of the bad year we’ve had overall we are only seeing sparse results.

    Avner As the economy recuperates, do you think will we see a bubble develop in this industry?
    Astorre You never know but I don’t believe that will happen in the next year or so. I think that except for a couple of exceptions, the numbers in the market look more solid. Solar which was probably one of the more inflated sectors has now gone down significantly. There is a huge over-capacity in solar for the next year of two so I see no potential bubble, quite the opposite; I see consolidation if not bankruptcy in that sector over the next few months. On the start-up level as well, apart from some outliers, most valuation have gone down to much more reasonable terms and in view of the supply-demand of capital I do not see them going up significantly in the next couple of years.
    Avner What relative advantage does Israel have to offer in the cleantech industry?
    Astorre First and foremost is the amazing level of entrepreneurship in Israel together with the multidisciplinary and flexible nature of Israelis in that they are able to quickly move from one field to the other. These transitions contribute to cross-fertilization of technologies and solutions between sectors and industries.

    Many cleantech projects are very multidisciplinary and the cleantech industry is a generally mature and slow market which hasn’t been dynamic in the last 20 to 30 years, so when someone from IT, software or telecom who has a culture of bringing innovation every month moves into cleantech he can bring “out-of-the-box’ concepts without the preconceived ideas which are deeply rooted in the industry.

    Avner How do you think Israel can become a leader in the industry?
    Astorre With the proper resources Israel can repeat the success it has achieved in high-tech thanks to the key expertise we have in solar, water, smart sensors, smart agriculture, biotech, materials coupled with our innovation, multidisciplinarity, entrepreneurship and the full start-up friendly ecosystem we have inherited from high-tech.
    Avner What are the biggest challenges to the Israeli industry?
    Astorre One of the challenges of cleantech compared to most sectors in high-tech is that cleantech is more of a “local” industry where different countries have different needs, regulations and physical conditions that have to be considered when implementing new infrastructure and technologies. For these reasons there is an importance in knowing the local issues of the target market. Also it is difficult to do a remote beta like you can do in software and sometimes like in wind you don’t have any local player to do a home, “friendly” test.

    With all this Israelis are particularly global-thinking compared to other countries so that at the end of the day, while the initial steps might be more difficult, it is easier to become a global company.

    On potential foreign markets and foreign investment in Israel…
    Avner Is the Israeli industry focusing on foreign markets and if so which ones specifically?
    Astorre As I mentioned before it is a must for Israeli companies to have a global perspective especially due to the neighborhood in which Israel exists, and that makes them focus from day one on foreign markets.

    Although Asia should play a bigger role Europe is currently the first market for cleantech, with the US catching up. This of course is a generalization as each sector in cleantech has specific trends but this can give a general idea. As the Asian market grows and Israeli companies become more sophisticated and networked, it will definitely be the most interesting market provided one knows how to “play” it.

    Avner What kind of foreign investors are we seeing getting interested and involved in the Israeli cleantech industry?
    Astorre Most top US VCs have already started to check the Israeli scene seriously. As Cleantech is relatively new for most of them as well it might still take a few years to reach the high-tech level of foreign activity and
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    it will probably be more focused in later stage deals. Eventually I believe we will also see more European players getting involved as there are quite a few dedicated players there so the potential is higher than in high-tech where European VCs are not in good shape. As for strategic players, most of the ones we are dealing with in this industry, in contrast to high-tech, are much less used to scouting innovation, investment and acquisition than the usual high-tech players. Apart from GE and partly Siemens there are very few players who have a track record or an infrastructure for strategic investment and acquisition of start-ups, although this is improving with time. This is a challenge for us since in Israel M&A is the most classic exit. Nevertheless, the ones that are active have recognized Israel as a key innovation spot for Cleantech and are coming here on a regular basis.

    Avner Finally, what would you say to a foreign investor interested in Israeli cleantech?
    Astorre There is a great opportunity in Israel. Compared to the US we have a lot more deal flow per $ invested in the field and what happened in High-Tech in the ‘90s is happening in Cleantech here but much more quickly.
    Avner Thank you once again for the fascinating chat…and for the coffee.
    Astorre It was a pleasure, good luck!