Venture Capital Finds New Love

Their romance with the dot-coms over, venture capitalists have shifted their affections to small companies with unique energy technologies, according to a report from the Associated Press. They are "after the '$300 billion jump ball' made possible by electricity deregulation," says Todd Klein, managing director of Kinetic Ventures, Chevy Chase, Md.

Jeff Miller of Beacon Group, Boston, told AP that "we have been following these technologies for 10 years, and they never were anything more than science experiments. Now, you've got the demand coming from the marketplace and very serious managers with very focused business plans."

In its July 15 issue, Red Herring magazine compiled a "basket" of 19 alternative-energy firm stocks. The average price-to-sales ratio is an astounding 428, compared with just 1.8 for firms in the Standard & Poor 500.

The 19 stocks rose in price by an average 160% in the two years ended May 2001, compared with a 15% average drop in the NASDAQ index over the same period.

Perhaps like the Internet stock bubble, the alternative energy rush is being fueled more by ignorance than knowledge. "While there's a lot of excitement about this sector, there may not be too much knowledge of the subject matter," said Maurice Shoenwald of the New Alternatives Fund told Red Herring.

From Pure Power, Winter 2001.