RPT-DAVOS-American VCs unfazed by China cleantech-Reuters survey

Thu Jan 28, 2010 11:04am EST

(This complements a special report on green funding: [ID:nLDE60O2HY])

By Larry Aragon and Peter Henderson

SAN FRANCISCO Jan 28 (Reuters) - Fears the United States will lose a battle with China to create clean technology for a climate-changing world don't fly with Silicon Valley venture capitalists.

The California financiers have an impressive track record, having funded small companies that eventually turned into Google, Yahoo and scores of other giants that shaped the internet revolution. After a sharp dropoff in the wake of the financial crisis, VCs expect to be more active this year and anticipate a much stronger flow of clean tech acquisitions or public offerings.

Perhaps not surprisingly, most also believe the United States remains overwhelmingly the best place to launch a clean tech business and market new goods and services -- and they are putting their money where their mouth is.

Those are some of the takeaways of a recent survey of 41 clean tech investors by Thomson Reuters. (For a graphic of the outcome: here)

Extrapolating from the survey responses of the venture capitalists, most of them in the United States, they plan to make up to 140 new investments in cleantech companies this year.

That would be a significant increase from last year, when the U.S. venture industry as a whole made 117 new clean tech investments, according to a venture capital database maintained by Thomson Reuters.

Pointing to the power of U.S. innovation and know-how, the respondents are optimistic the startups they finance will lead the way in creating technologies that reduce global warming even if material reductions in carbon dioxide emissions take time.

"It is likely that we will make significant technology, conservation and policy gains globally ... but material CO2 reductions will take an additional decade to register," Don Wood, a managing director at Draper Fisher Jurvetson, wrote in one survey response.

Robert Nelsen, co-founder and managing director of Arch Venture Partners, noted that "the world has absolutely no hope of making any substantial impact on global warming without major scientific breakthroughs, almost all which will come from United States' innovation.

"China and Europe are doing well developing markets and applications, but we [the United States] still own the fundamentals."

BEST MARKETS

More than three-fourths of survey respondents said the United States would be the best market for cleantech over the next five years, and 88 percent said America was the best place to base a cleantech business in the next five years.

China ranked as the second best market (with 16 percent of the total) and the second best place to locate a cleantech business (with about 13 percent).

The survey respondents clearly recognize the critical role that other countries will play if widespread adoption of clean technologies is to be successful.

Countries such as China, India and Brazil will adopt such technologies not just to combat climate change, but also because of the sheer energy demand their economies are generating, wrote Bilal Zuberi, a principal with General Catalyst Partners.

"Pressure from these countries will force the developed world to also adopt renewables and energy-efficient technologies at a faster pace," Zuberi noted.

One caveat: over the next decade, the progress will come from companies that have already moved beyond venture capital, with public share sales or by being bought out.

"VC-backed companies will definitely play a part, but considering it takes five years for one to mature, it is the companies that exist today that will have the biggest impact by 2020," wrote Todd Jaquez-Fissori, a managing director at Hercules Growth Capital.

MORE CLEANTECH IPOS

U.S. venture capitalists expect to see a substantial increase in the number of their portfolio companies that are acquired or go public this year. More than 51 percent of the respondents said they expected one to two of their companies to be acquired or go public this year -- which translates to anywhere from 21 to 42 companies.

That would be a significant increase from last year, when only one VC-backed cleantech company, lithium-ion battery maker A123 Systems AONE.O, went public on a U.S. exchange and just seven VC-backed cleantech companies were acquired, according to Thomson Reuters.

Three VC-backed cleantech companies have already registered to go public this year:

* Codexis, which is working with Royal Dutch Shell on biofuel products, has registered for a $100 million IPO. Codexis has raised more than $125 million in VC from Bio*One Capital, Chevron Technology Ventures, CMEA, and the Malaysian Technology Development Corp., among others, according to Thomson Reuters.

* JinkoSolar Holding Co. Ltd., a China-based solar company, has filed for a $100 million IPO on the New York Stock Exchange. It previously raised $35 million in venture funding from CIVC Partners, Shenzhen Capital Group Co. and Pitango Venture Capital, according to Thomson Reuters.

* And Solyndra Inc., which builds thin-film solar tubes, filed for a $300 million IPO. It has raised more than $500 million in venture capital from Argonaut Private Equity, CMEA Capital, Redpoint Ventures, Rockport Capital Partners and U.S. Venture Partners.

The primary focus of cleantech investors is now energy conservation.

Some 65 percent of respondents surveyed said their top cleantech area for 2010 would be energy conservation-related companies, such as makers of LED lighting, energy-efficient building materials, or software that tracks and manages energy used in home and electric vehicles.

Asked for specific areas of investment, fewer than 18 percent said they would target companies focused on "clean" energy production, such as wind, solar, wave power and biofuels, to replace energy produced by coal and oil.

Some 31 percent focused on energy management and 31 percent more on energy storage, such as battery makers. (Additional reporting by Clare Baldwin; Editing by Sara Ledwith and Jim Impoco)

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