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VENTURE CAPITAL-A tough time for cleantech start-ups
September 23, 2010 / 5:03 PM / 7 years ago

VENTURE CAPITAL-A tough time for cleantech start-ups

Sept 23 - Venture capital firms are putting less money into early-stage clean technology companies, prompting concerns about who will fund the next generation of innovative cleantech start-ups.

Mark Boslet of Venture Capital Journal reports:

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* Report: Sharp decline in VC for young cleantech firms

* Angel investors doubled cleantech investments -survey

* Bloom Energy competitor couldn’t raise VC, went kaput

SILICON VALLEY - Almost three quarters of U.S. venture capitalists say increasing clean technology spending is a top priority over the next five years, a recent survey found. But these same VCs who hope to pour more money into smart grid, energy efficiency and other green technologies are beginning to starve cleantech innovation as they increasingly invest fewer dollars in newly formed cleantech start-ups.

Investment figures from before and after the 2008 financial crisis underscore this trend. Seed stage and early stage cleantech companies based in the United States raised $886 million from venture capitalists in 2007, but they managed to raise less than half that amount ($424 million) in 2009. Those figures come from the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, which is based on data from Thomson Reuters (Reuters’ parent company).

While it is true that venture investment fell across-the-board last year due to the global recession, investment in new cleantech companies is down as a percentage of overall dollars committed to the sector. VCs invested about 35 percent of their money in American seed and early stage cleantech companies in 2007, but they invested less than 20 percent of their capital in young American cleantech companies in the first six months of this year, according to the MoneyTree Report.

Some investors say they are focusing less on early stage cleantech deals because there have been too few exits in the space, so they are investing more money in mature companies that are more likely to produce returns. For example, three later stage cleantech companies have, as a group, raised hundreds of millions in venture capital this year: BrightSource Energy, a builder and operator of solar power plants; Better Place, which is building a network of charging stations for electric vehicles; and Fisker Automotive, an electric car maker.

ONE OPEN-SHUT CASE

One example of an early stage company unable to find venture capital is Evogy, a San Jose, Calif.-based start-up with a solid-oxide fuel cell that might have competed with Bloom Energy. Evogy developed a 50-watt prototype and drew interest from Cisco Systems and the U.S. Army, says former board member Richard Helfrich, founder of Vitesse Semiconductor and a former venture capitalist.

Evogy got started with backing from angel investors and in 2008 began to seek a venture round of $25 million to expand production. But the VCs balked, and Evogy closed its doors. Helfrich says the failure is evidence of how venture partners are now more hesitant to take on technology risk.

With fewer venture capital firms funding early stage cleantech companies, angel investors are stepping up to fill the void. Cleantech accounted for 17 percent of all angel investments last year, up from just 8 percent in 2008, according to the University of New Hampshire’s Center for Venture Research.

Investor group Silicon Valley Angels has already invested in two cleantech companies this year, both with rounds of less than $1 million. It backed Solmetric, a Sebastopol, Calif.-based developer of handheld tools that solar installers use to evaluate the potential of solar sites on rooftops, and NuvoSun, a Palo Alto, Calif.-based maker of thin-film solar cells.

“I would say the group [of angels investing in cleantech] is getting bigger,” says Thomas Sachson, co-founder of Silicon Valley Angels.

The question is whether these angels have enough money to keep clean technology innovations flowing from the lab to the marketplace.

Venture Capital Journal is a Thomson Reuters publication. Contact editor in chief Lawrence Aragon at lawrence.aragon@thomsonreuters.com

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