I am not suggesting for a moment that all Green businesses are bad investments, but I am suggesting that whenever a bubble appears or to there is much enthusiasm for an idea, that a number of the businesses ideas sold to unquestioning investors will turn out to serve the middle men far more than the money men.
As the investors, the business angels, we need to be on our guard.
There appear to be two dangers with the current alternative or green energy fad.
The first is the classic investment risk taught by Benjamin Graham and discussed in his book The Intelligent Investor. Graham, the mentor of Warren Buffett, took apart the reasons for investing in the 1950s boom industry – the airlines.
His analysis has been proven to be right as Buffett now claims that in 50 years, airline investors taken as a whole still have not had a return on their money.
However, Graham did spot that a large number of companies supplying the new industry did make a lot of money for investors. Airports, retailers and caterers have done well.
Graham’s conclusion was that it is far better to supply a growth business sector than to be a part of a great swam of investment as inevitably too much money will be invested too easily squeezing the profit margins of good ideas.
The second risk is that climate change will turn out to be a Malthusian idea that solves itself as population growth, mutually assured destruction and other apocalytic senarios usually do.
This is illustrated by the increasingly sceptical scientific community which is beginning to raise its head against the slavish commitment to all forms of greenery.
I and my fellow investors are not scientists, but it is worth noting their scientific concerns as it could up-end a few business models and a lot of start up ideas.
Firstly, there is a generally held view by the (admittedly few) academics that I know that if a scientist wishes to receive funding for research he is well advised to research ‘the affects of climate change’ and that research into ‘climate change – the myth’ isn’t currently being funded. By making the assumption that climate change is real, researching get money, if not then not.
Therefore, the scientific literature being published is already biased by the incentives of the research grant process and therefore, can needs to be viewed as biased in favour of climate change. The latest report from the IEA (International Energy Agency which made the front page of the Financial Times) might be a good example as it take it as proven that global temperatures are rising).
Next, dissent is beginning to break out in normally green magazines such as the UK’s Big Issue (sold on the streets by UK homeless) as well as larger circulation magazines such as The Economist.
In fact, a recent letter to the Economist by Horst-Joachim Luedecke, retired professor of physics, Heidelberg set out three reasons to be scepitcal of green alarmists.
- There has been no discernible increase in storms, hurricanes, floods or droughts according to the Intergovernmental Panel on Climate change.
- Rises in sea levels of 1-2mm per year have been occurring for many centuries and therefore this is not evidence that sea levels are rising as a result of any climate change factors.
- Mean global temperatures have actually declined since 2001 and the research scientist, Professor Mojib Latif of University of Kiel, predicts further declines over the coming decades.
Let’s not enter the green / not green arguments here.
Let’s simply take this as a warning and a reminder that green start-up business are at greater risk of hype and hyperbole, rather like dot coms in 1999, and therefore each idea needs to be scrutanised much more closely.
Or indeed, that if you are not an expert on this sector, simply do not allow yourself to be drawn into it on the promise of easy winnings.
If you want to read some more science based sceptiscm on climate change then head over to http://cfact.eu/