The rumors of the death of cleantech investment have been greatly exaggerated.
Clean tech’s big dream of a more energy efficient future fueled by renewable power sources (Fleets of electric cars! A chicken in every pot and a solar panel on every home!) didn’t die with the high profile bankruptcies of companies like Solyndra, A123 Systems, and Fisker Automotive.
As the first decade of cleantech investment draws to a close, when venture capitalists spent — and lost — billions of dollars backing companies; a new investment paradigm seems to be emerging, with cleantech companies that are doing more with less capital commitments.
A recent study of cleantech investments from CrunchBase shows that while investors remain active, they’re not committing nearly as much money as they did in the heyday of clean technology investments.
Much of the new, more restrained approach can be laid at the feet of big cleantech bankruptcies that have hit the market over the last several years. Coupled with the underperformance of several companies in once-hot markets like biofuels, which have failed to deliver, cleantech investment went through a bit of a retrenchment.
However, for all of the failures there have also been a string of successes in the industry. Companies like Elon Musk’s Tesla Motors and SolarCity; or Opower, the venture-backed company providing information on energy use to utility customers; or Climate Corp., the weather tracking, big data company acquired by Monsanto for $1.1 billion all point to the value that can be created through clean technology investments.
Indeed, those bright lights seem to have fed a resurgence of interest in the sector, with investors again opening their wallets for new companies. The first quarter of 2014 was among the most active periods for clean technology investments in the past five years, according to CrunchBase data.
In June, companies like the electric vehicle manufacturer, Proterra, and the recycling company BlueOak Resources raised significant capital from corporate partners and project financiers along with venture investors to continue building their businesses.
This new environment is actually better for cleantech companies, says Ryan Popple, a partner in the Kleiner Perkins Caufield & Byers Green Growth Fund who now serves as the Chief Executive at Proterra.
“I got into green in 2006,” says Popple, who previously worked at the biofuel company Cilion, which had raised $160 million in funding from Khosla Ventures and Richard Branson in 2006. “Cilion, between its Series A and Series B raised more money than Proterra would ever raise — including its IPO.”
According to Popple, the lessons learned from the ebullience of the cleantech bubble of nearly a decade ago have been taken to heart by the investors that remain active in the market.
“The most important thing is that we have the right amount of venture capital,” he says. “The problem set that we’re going after is still enormous and it still may be one of the biggest economic opportunities over the next millennia or two.”
Given the opportunity, venture investors will still cut the big check for a company that seems particularly promising. Like Cool Planet Energy Systems, which closed on $100 million in new funding earlier in the year. However, investments like that are proving to be the exception in the current cleantech market, not the rule.
Capital intensity remains an issue for large, industrial companies developing new processes for energy manufacturing, or making new kinds of vehicles, or building new recycling plants. Now though, these companies are able to develop their technologies with equity commitments from venture capital firms working alongside corporate partners and other providers of capital.
Proterra’s investment syndicate included GM Ventures and Mitsui. Cool Planet raised capital from investors including the energy giant BP, and Energy Technology Ventures — a joint venture between corporate investors General Electric, NRG Energy, and ConocoPhillips. These corporate investors and a cadre of family offices have stepped in to fill the void in funding that was created when venture firms abandoned the cleantech market.
“There’s a resurgence,” said Andrew Chung, an investment partner with Khosla Ventures — one of the most active firms investing in clean technology. “But it’s from newer pockets of capital that have taken an interest in the area.”
For investors like Rob Day, at Black Coral Capital, startups in cleantech look better than they have in a long time. In a recent blog post, Day wrote that the cleantech market was poised for growth and a return of investors who had previously shied away from the sector. Day writes:
Many startups that survived through lean times are now poised for growth. And startups that were better positioned because of lower capital burn, or launched after the lean times with smarter business models, are doing quite well indeed. Cleantech startups are healthier than ever.
The future of cleantech investment is still unwritten, and with a new generation of startups still waiting in the wings, the bells that investors hear may be for public offerings instead of at the industry’s funeral.
Photo via Flickr user Intel Free Press.