A Tale Of Two VC Industries: The Web Versus Cleantech

Last week, venture capitalist Fred Wilson wrote a post pointing out that the VC industry is split in two: software-based businesses and everything else (specifically, “cleantech, biotech and other capital intensive businesses”).

Software businesses don’t require as much capital as they once did, and certainly not as much as cleantech or biotech. In fact, I’d go so far to say that the main asset venture capitalists bring to the table for Web startups is no longer capital, but rather connections, advice, and deal-making prowess. Whereas for greentech and biotech, the capital is still the most important thing they bring to the table. Wilson concludes:

I don’t think you can make blanket statements about the VC business anymore. These two industries are very different from each other and will have very different business dynamics and risk and return characteristics going forward.

To get a snapshot of the capital going into these two different VC industries, we ran some numbers through CrunchBase to compare funding rounds for consumer Web and ecommerce startups versus cleantech companies. The data in CrunchBase for cleantech companies is not nearly as complete as it is for Web startups, but the trends they highlight are instructive. (If you work for a greentech company, please add or update your Crunchbase profile).

So far this year through the end of August, CrunchBase tracked $1.87 billion in cleantech venture financings versus $1.35 billion for consumer Web and ecommerce startups. But CrrunchBase captured four times as many deals for Web startups than it did for cleantech.

What is even more interesting is that the amount of venture capital that went into Web companies actually went down 8 percent from the same period the year before (from $1.5 billion). For cleantech, the venture dollars increased by a whopping 77 percent (from $1.1 billion).

When you look at the average deal size, the disparity becomes even larger. The average size of a venture round for a Web startup during the period was $5.2 million. The average size of a cleantech round was $30.7 million. Those numbers are across all funding rounds (seed through series F). Based on this snapshot, cleantech is nearly six times as capital intensive as the Web.

On the exit side of the funnel, of 32 Web startup acquisitions with reported deal values tracked by CrunchBase so far this year, the total in exits was $4 billion. The comparable exit value for cleantech companies was $726 million, but that was only for four tracked companies. When you look at the average exit value, it was $182 million for cleantech versus $63 million for Web. Remember, these are not ROI numbers since the exits were for different amounts invested earlier, but it gives a sense of money in versus money out for these sectors.

Again, our cleantech numbers are far from complete, but the data does illustrate how much more capital it takes to fund cleantech than Web startups. And it also suggests anecdotally that cleantech exits on average are commensurately larger. Although, we admittedly don’t have enough good data on cleantech exits to make any hard conclusions.

Web and ecommerce Deals January-August, 2010

SUM TOTAL = $1,353,564,659
AVG OVERALL = $5.2 million
HIGH = $135,000,000
LOW = $2,500

AVG A = $3,184,273
AVG B = $8,173,998
AVG C = $16,850,000
AVG D = $10,068,750
AVG E = $9,416,628
(F) 1 deal = $33,000,000
AVG SEED = $534,132
AVG ANGEL = $987,201

COUNT = 32
SUM TOTAL = $4,041,231,000
AVG DEAL SIZE = $63,152,269

Cleantech Deals January-August, 2010
SUM TOTAL = $1,871,661,959
AVG OVERALL = $30.7 million
HIGH = $350,000,000
LOW = $10,000

AVG A = $5,945,585
AVG B = $48,930,962
AVG C = $35,626,667
AVG D = $40,790,000
AVG E = $42,000,000
(F) 1 DEAL = $12.5 million
AVG SEED = $1,064,600

SUM TOTAL = $726,300,000
AVG DEAL SIZE = $181,575,000