Cleantech investment growing but still small

The Ernst & Young LLP and VentureOne Quarterly Venture Capital Report was recently released. I thought it might be interesting to tabulate some of the results.

(Sorry, I just can't get this table right yet!)

This is the most venture capital invested in a single quarter since the fourth quarter of 2001.  Growth and investments were mostly driven by heavily by health care and to a lesser extent IT. 

Clean clean technology showed a major increase of 350% over the first half of last year. Note that most of that increase (76%) occurred in the second quarter. But before getting too excited, note that almost 40% was the result of the NanoSolar ($75m) and Altra ($50) deals.  Moreover, in overall terms, the 23 cleantech companies financed only represented only 2% of all companies receiving finance.

I attended SRI's Third Annual Energy Tech Investor Conference last week. It was a good conference with excellent representation from top-tier and cleantech specialist VC.   There was a lot of discussion on the convergence of bio-tech and cleantech at the conference. The consensus was that investor interest is increasing, but there are still some barriers:

• The capital investment and lead-time sometimes do not fit VC expectations
• There have been relatively few successful exits by IPO or trade sale
• Historical trade sale valuations in industrial sectors is 4-8 times, much less than experience in IT

Also interesting was that the San Francisco Bay Area (Silicon Valley) continues to dominate as a source of venture capital. It provided 36% of the total investment and provided more than three times as much as its nearest rival (New England).

Bottom Line: Cleantech companies will find it easier to raise capital, but the going will be still be tough until investors become better educated on the sector and we see attractive exits from the sector.