Smart grid startups better not be planning to raise any venture capital, because the climate continues to be dreary. But getting bought has never been easier.

That’s the gist of Mercom Capital Group’s latest smart grid investment report, which tallied a mere $62 million in VC investment in the first quarter 2012. That’s down from $66 million in the fourth quarter of 2011 and $102 million in the same quarter last year -- a far cry from the record-setting $305 million raised in the second quarter of 2010.

In fact, the ten deals Mercom recorded in the first three months of this year garnered the lowest investment since the $51 million reported for the second quarter of 2009. Since then, we’ve seen about $4.3 billion in smart grid stimulus grants work their way through the U.S. utility industry, while China has directed hundreds of billions of dollars toward massive grid improvements and Europe has begun the process of rolling out tens of millions of smart meters to meet 2020 goals.

But as we’ve reported since then, smart grid spending has hit the doldrums. With stimulus money accounted for, utilities are working hard to manage their existing deployments and aren’t eager to start new projects. In the meantime, VCs are coming to terms with the fact that utilities are slow to adapt new technologies and subject to all kinds of reversals from customers and regulators. Home energy management, the smart grid segment that garnered a majority of VC cash back in 2008 or so, has yet to take off at all.

IPOs are also hard to come by in the smart grid space. Standout smart grid startup Silver Spring Networks has been holding fire on its public offering for more than nine months now, and we’ve yet to see an equally well-known contender announce plans to brave the IPO market. Silver Spring is also one of the few smart grid companies to bring in significant follow-on investment in the first quarter, raising $30 million from Hitachi in March, on top of $24 million from EMC in December.

In the meantime, the most likely exit for smart grid VC investors continues to be via acquisition. Mercom recorded six M&A transactions in the first quarter, three of them disclosed: Siemens’ $382 million purchase of RuggedCom, Itron’s $100 million buyout of SmartSynch and Comverge’s $49 million fire sale to private equity firm H.I.G. Capital.

That adds up to more than half a billion dollars in M&A for the quarter, not counting undisclosed deals like Tendril’s purchase of Recurve and Landis+Gyr’s acquisition of Ecologic Analytics. It also doesn’t include ABB’s $3.9 billion purchase of low-voltage equipment giant Thomas & Betts in January, one of several multi-billion dollar grid acquisitions we’ve seen in the past few years. 

Still, we’ve yet to see the latest crop of big smart grid acquisitions prove that they are giving investors anything like the 5x-and-up returns that VCs tend to look for. Siemens bought smart meter data management partner eMeter for an undisclosed price in December, but sources have pegged the price at $180 million to $220 million, which would equate to a 2.6x to 3.1x multiple on the $70 million invested in the startup. Itron’s $100 million purchase price would appear to offer little return for investors in SmartSynch over the past decade or so, and Comverge’s sale to H.I.G. Capital for a fraction of its past publicly traded value -- an IPO in reverse, so to speak -- does not augur well for other pure-play smart grid companies seeking access to the public markets.

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