US Venture Investments In Cleantech Plummet In Q3, Energy Efficiency Bucks The Trend

Domestic venture capital funding of cleantech businesses fell 55% to $575.6 million in the third quarter of 2010 compared to the same period last year according to a new report from Ernst & Young and Dow Jones VentureSource. The energy efficiency segment, however, beat the downward trend.

The largest deal of the entire quarter was a $65 million third-round later stage deal closed by Solaria Corp., a Fremont, CA developer of silicon photovoltaics and high-efficiency solar panels.

Including “energy efficiency products, power and efficiency management services or industrial products,” the energy efficiency segment saw 17 deals raising a total of $161.7 million in venture capital funds, representing an increase of 6% by dollars, and 21% by number of deals, year-over-year in Q3.

Smooth-Stone— an Austin, Texas startup that sells ultra-lower power chip technology to data centers— closed the largest energy efficiency deal for the quarter. Graduating from the Austin Technology Incubator, the company raised $48 million from a syndicate of investors including: Battery Ventures, Flybridge Capital Partners, Highland Capital Partners, ARM, Advanced Technology Investment Company (ATIC) and Texas Instruments.

Corporate investments and plans to invest in energy efficiency influenced the trend, the Ernst & Young / Dow Jones report suggests. For example, General Electric (GE) said it would invest $432 million over the next four years into research, design, and manufacture of energy-efficient refrigerators in the US.

Overall, corporate investor participation increased from 15% of deals in Q3 last year to about 23% for the same quarter this year. Cleantech deals in Q3 2010 included participation by corporate investors: BASF Venture Capital GmbH, Intel Capital and GM Ventures, which all did two deals apiece.

Beyond energy efficiency, other segments faced a challenging quarter. Venture capital funds going to industrial products and services— which include agriculture, construction, transportation, materials, and general consumer products— fell 72% to $116.9 million, representing a 50% drop in financing rounds to 12. The alternative fuels segment raised $50.5 million in three deals.

Regionally, the report found California’s venture investments in cleantech falling 44% to 21 deal, and by dollar value, falling 71% to $295 million. In comparison, California had five deals over $50 million one year ago, including the $286 million financing of Solyndra.

Massachusetts followed California as largest regional overall investors, with eight deals worth $87.6 million, representing a 50% increase in deals and a 65% increase in capital invested compared to the same time last year.