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First quarter cleantech VC funding still hits $1 billion — green stimulus funds soar to $400 billion

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"First quarter cleantech VC funding still hits $1 billion — green stimulus funds soar to $400 billion"

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Clean tech venture capital funding in the first quarter of 2009 hit $1 billion, according to “findings released today by the Cleantech Group in cooperation with Deloitte.”

For the authors of the findings, the headline news was global cleantech VC funding “dropped 41 percent during 1Q09, compared to the previous quarter.” But that $1 billion in Q1 is still huge. Compare it to Q1 2007, when the economy was still booming — and cleantech VC funding was “only” $900 million.

Or consider this — of that $1 billion spent in Q1 2009, nearly $700 million was spent in North America, which is more money than was spent all last year on relevant cleantech R&D by DOE’s Office of Energy Efficiency and Renewable Energy, which does virtually all federal R&D spending in this area.

The news continues to be “stimulus and venture capital sow seeds for cleantech industry’s ‘revival’.” Indeed, the global stimulus investment in cleantech has been unprecedented:

Venture investing decreased in recent months, but governments representing nearly a dozen countries are now backing clean technologies through stimulus packages, loan guarantees and tax incentives (see Germany, U.S., Australia inject stimulus spending into cleantech).

A new report co-authored by economist Lord Nicholas Stern to be presented at the G20 Summit in London later this week estimates that almost $400 billion of roughly USD $2.6 trillion in economic stimulus allocations announced so far by G20 nations are earmarked for clean technologies such as renewable energy, improved electrical grids and cleaner cars.

Utilities and corporations are also stepping in to bankroll more mature companies.

“Governments are not the only significant new investors in cleantech… Utilities are also stepping up to fill the funding void and making equity investments in companies,” said Scott Smith, U.S. Leader of CleanTech for Deloitte.

“Investment plans range from building and operating solar and wind systems to financing third party, shovel-ready projects. These moves underscore cleantech’s emergence as a significant and maturing market that will remain highly relevant — both during and following the economic downturn.”

For more on the U.S. stimulus, see “Progressives, Obama keep promise to jumpstart clean energy, economy.” The reporting goes on to state the obvious — the drop in VC funding is only temporary:

Indeed, it may be that cleantech represents a continued growth area for VCs as well. The global cleantech sector pulled in a whopping $8.4 billion in venture capital investment in 2008, a 38 percent increase from 2007 totals, marking the seventh straight year of growth [see here].

In contrast, total venture capital investment fell 8 percent in dollar volume and 4 percent in deal volume in 2008, according to the MoneyTree Report by PricewaterhouseCoopers and the U.S. National Venture Capital Association….

Some venture capitalists say the recent slowdown has allowed valuations to come down to more manageable levels and allow them to put capital to better use.

“Good companies continue to get financed even in these difficult months. There is still a lot of appetite,” said Erik Straser, a general partner with Mohr Davidow Ventures. Straser added that although new companies are getting funded investors are “looking to support existing companies and follow them through.”

Once we are out of the global recession, oil prices start to soar again, plus stronger federal and global clean energy and climate policy will start to kick in. Then cleantech VC funding will no doubt reached record levels.

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5 Responses to First quarter cleantech VC funding still hits $1 billion — green stimulus funds soar to $400 billion

  1. paulm says:

    Becoming proactive…

    New Study: Insurers Move Slowly on Climate Risks
    http://www.nytimes.com/cwire/2009/04/03/03climatewire-industry-begins-to-move-on-climate-risks-but-10429.html
    Insurers worldwide are gearing up to confront climate change

    The United States has averaged $18 billion annually in economic losses from natural disasters between 1980 and 2008, according to a report released last month by Maplecroft, a British risk management firm. Last year, the United States saw $57.3 billion in losses, largely attributed to Hurricane Ike.

  2. Albert says:

    I wish there were a way for regular people to invest directly in green technology deployment.

    Green America has proposed “Clean Energy Victory Bonds”:

    “Modeled on successful WWII-era Victory War Bonds that raised $185 billion ($2 trillion in today’s dollars) and engaged over 85 million Americans who bought bonds that started at $25, CEVB would offer ordinary Americans federal government bonds that would fund large-scale deployment of clean energy. CEVB would pay an annual interest rate, with the payback based in part on the energy and energy savings the bonds generate.” (http://www.justmeans.com/showideadetails?ideaid=8332)

    There is a non-profit in Boston that is planning to offer their own “Investment Notes” for clean energy products:
    http://www.newgenerationenergy.org/

    One reason I don’t like the idea of renewable energy certificates is that you are just handing your money over to developers, rather than investing it. I would rather have the environmentally conscious consumer getting back a share of the profits so they can continue directing that money to do good.

    I would be curious about what ideas people have for tapping the commitment of people to be green (and make green)?

  3. Albert

    The city of Berkeley, CA has initiated a solar financing program. The city will put up the money for any homeowner or small business to install solar panels. You pay back the money as a surcharge when you pay property taxes. Pass on any balance if you sell the house. They will sell bonds to finance this.

  4. John Mashey says:

    1) Using the scheme from R2-D2 & Bell Labs:

    Pure Research (R1) many little projects, modest $
    Applied Research (R2)
    Exploratory Development (D1)
    Advanced Development (D2)
    Development (D3) might include pilot plants, beta tests, etc.
    Deployment & scaleup, cost reductions, etc. (D4) $$$$$$

    VC’s do not purposefully fund R1 or R2, or usually D1. They love to fund the later stages after projects have reduced technical risk.

    2) That means that real funding for R1+R2+D1 is via government, (and sometimes companies) and done at government R&D labs or universities.

    Fortunately, Stephen Chu actually understands the various flavors of R&D, and hopefully we’ll see more funding for useful energy research. Still, it is not unreasonable that more money be spent on the later stages than on the earlier stages, and it is *really* important to manage this whole process well. Government’s biggest leverage is in encouraging deployment of things that already work, while making sure the R&D “funnel” remains filled (or in this case, gets refilled).

    3) Finally, there is good news to the VC numbers that might not be obvious:

    Most of the current cleantech investments are early-stage (A&B rounds). During the typical 10-year life of a VC fund, VCs typically only invest in *new* companies in the first ~4 years, but when they make an investment, they *reserve* money for later-stage investments (B & C rounds, maybe D) in a subset of those same companies.

    They do this because, having invested once, they want to make sure they can get to invest in the later rounds of companies that look like winners. Hence, it is almost certain that an early investment decision will include serious arguments about total capital required to get to a) break-even and b) liquidity event.

    4) So, in practice, there are substantially more funds reserved for cleantech than is obvious from the current investment level.

  5. Albert’s comment above reflects what I am seeing in my CPA practice. I have investors who would love to invest directly in renewable energy projects. However, I have had to tell them the bad news that Congress has chosen to limit the availability of the Tax Credits and losses from the accelerated depreciation on renewable projects effectively to be available for use only by large, widely-held C corporations. The problem lies in Passive Activity Loss Limitations, which prevent individuals and small businesses from using these tax breaks. Now that most of the large C corporations that were investing in greentech are losing money, they no longer have any need for the tax breaks, and renewable projects are in need of investors. A special exemption for renewable energy projects might allow investors like Albert, and some of my clients, to participate in these projects.

    See “Solar for Lawyers and Big Corporations: How to Keep Normal Folks from Investing in New Energy” article for more on this here:

    http://www.energyeconomyonline.com/Tax_Law_Barriers.html