February 15, 2010

What’s hot in cleantech VC ?


Investment Drivers

Growing demand for environmental technologies is driven by long term rising oil prices, growing awareness of global warming, and government regulations and incentives.

The industry has benefited from the expectation of a rising carbon price driven by increasingly restrictive regulations. However, the failure of the Copenhagen talks have set this expectation back somewhat.  Consistency and predictability of regulation would free up more capital investment in the sector.  However, in the long term, clean technologies must be competitive on their own merits rather than depending on subsidies and incentives.

VC Investments

Cleantech received $5.9 billion of venture capital in 2009 [Cleantech Group and Deloitte]. This represented a quarter of all global VC investments, more than any other area, despite a recession-driven 30% dip from 2008 levels.

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Historic expertise in venture capital, plentiful solar resource and similarities between solar cells and semiconductors have combined to make Silicon Valley a cradle of the Cleantech innovation boom.  Leading investors in the space include Kleiner Perkins, SAIL Venture Partners, Rockport Capital Partners, Khosla Ventures, Element Partners, Draper Fisher, Foundation Partners.

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VC Sector Focus:

Top sectors for VC investment were:

·       Solar energy (e.g. newer more efficient solar cells)

·       Transportation (e.g. infrastructure and batteries for electric vehicles)

·       Energy Efficiency (e.g. insulation, intelligent sensors, efficient motors)

·       Biofuels (e.g. biodiesel, wood chip burners)

·       Smart Grids (e.g. power distribution management, demand response)

·       Water (e.g. purification, desalination and irrigation).

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VC Stage Focus

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In Q2 2009, about 8% of Cleantech VC investment went into start-up companies, 27% into companies that were developing products, and 65% into firms that were already shipping products [Ernst & Young survey]. This represented a risk-averse shift to late stage companies driven by the 2009 recession.

Other funds

Beyond venture capital, cleantech attracts much larger investments from traditional sources including banks, infrastructure funds, corporates, governments and private equity firms. The majority of this goes into mature capital intensive sectors such as wind energy.  It was estimated that world-wide investment in clean energy would reach $200 billion in 2009 [Bloomberg New Energy Finance].