The Brookings Institution last month warned that federal spending on clean technologies is drying up, with little sign of additional help coming from Congress. As tax credits and grants expire, federal support is likely to “fall off a cliff,” it said, and more cleantech companies are likely to go bankrupt or be consolidated.
So what does that mean for venture capital deals? Is cleantech investing dead? Or is interest shifting “downstream” from companies building power plants, electric cars and solar panels to companies focused on getting energy data into the hands of consumers and solar panels on roofs?
“People are shying away from cleantech, and it’s clearly slowed down,” said Pierre Lamond, a partner at Khosla Ventures in Menlo Park. “In 2007, anything that was green, or claimed to be green, got investment. Now everyone is looking for the next Facebook.”
Khosla Ventures has a significant cleantech portfolio that includes Soladigm, a Milpitas company that makes “smart windows” for the green building market, and EcoMotors, a Detroit company building a smaller, lighter and more fuel-efficient internal combustion engine. The company still invests in cleantech, but Lamond says the firm is getting fewer pitches from cleantech entrepreneurs. The bright spots are batteries for electric vehicles and energy storage.
“People are a lot more cautious. The solar sector is dead in terms of startups. Wind is dead in terms of startups,” Lamond said. “Venture capitalists have to make money for their limited partners, and it’s easier to make money in social media.”
Several deal trackers recently published their tallies for venture investing in the first quarter, which is typically a slower quarter across most sectors. As usual, the news for cleantech is complex because the sector includes industries as diverse as biofuels, electric vehicles, lighting, solar and the smart grid. Some deal trackers also include wastewater treatment and recycling in their analysis.
The MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, based on data provided by Thomson Reuters, found $951 million invested in 73 cleantech deals in the United States — a 30 percent decrease in dollars and an 11 percent decline in deals compared with the fourth quarter of 2011.
Dow Jones VentureSource found $513 million invested in renewable energy companies through 23 venture deals in the first quarter, down from 24 deals and $630 million in the fourth quarter.
And the Cleantech Group found that U.S. companies raised $1.3 billion in 113 deals, down 17 percent from the fourth quarter and 36 percent from the first quarter a year ago.
All agree cleantech has had a volatile year. Fremont solar maker Solyndra’s high-profile bankruptcy in September cast a long shadow across the entire solar industry. Renewable forms of energy face increasing competition from cheap natural gas. And the United States lacks a coherent, national energy policy — which means that companies often look outside the U.S. for business or struggle to adapt to markets state by state.
Many cleantech watchers hoped Oakland-based BrightSource Energy, which makes solar thermal power plants, would have a successful public offering this year, but it abruptly shelved its IPO plans last month amid tepid interest from investors. There hasn’t been a blockbuster IPO for the cleantech industry since Tesla Motors (TSLA) went public in June 2010.
“The sky is not falling in cleantech. Don’t let anyone say cleantech exits (IPOs or acquisitions) aren’t happening — they’re just not happening in North America,” said Dallas Kachan of cleantech research and consulting firm Kachan & Co. “China is where all the action is in cleantech today.”
Rob Day, a partner with Black Coral Capital in Boston, says that cleantech is suffering a double hit: federal stimulus dollars are drying up and VCs are looking elsewhere.
“The category got defined by big, capital intensive projects that didn’t result in returns,” he said. “VCs, at least the smart ones, weren’t chasing stimulus dollars in and out. But they are pulling out of the sector at the same time that stimulus dollars are being withdrawn — and that’s not good.”
Some say cleantech investing is just shifting — and becoming smarter as the industry naturally matures.
“I think cleantech is alive and well, and we see new deals every day — early stage, mid-stage,” said Nancy Pfund of DBL Investors. “By no means is cleantech on life support. There’s been a difficult political environment for cleantech over the past year, and there’s been volatility in the stock market. But plenty of companies are still coming to us.”
Last week San Francisco-based Sunrun announced it has closed a new $60 million round of funding, led by Madrone Capital Partners and existing investors Accel Partners, Sequoia Capital and Foundation Capital. Sunrun, which provides financing for homeowners who want to install solar panels in 10 states, has raised $145 million in venture capital to date.
“Often the best time to invest is when other folks are running the other way,” said Sequoia Capital partner Warren Hogarth. “The cost of natural gas will go back up. Japan just shut down its nuclear reactors. Globally there’s still strong demand for cleantech. It’s a matter of being patient.”
Campbell-based Coulomb Technologies, a leading player in the race to install public charging stations for electric vehicles, secured $47.5 million in a fourth round of funding earlier this month. The funding round, led by venture capital firms Braemar Energy Ventures and Kleiner Perkins Caufield & Byers, was oversubscribed.
“This is a software company that just happens to be in the electric-vehicle market,” said Dan Ahn of Voyager Capital, an investor who has served on Coulomb’s board since early 2010. “It’s very easy for venture firms to say that the cleantech space is dead. Maybe the reason why you didn’t make money is because you didn’t make good investments.”
Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.
