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Putting cleantech VC in perspective

Rob Day: April 30, 2007, 5:29 AM
From a study released today by Lux Research, here's a picture that's worth a thousand words...

A pdf of the press release can be found here, and there's much more to the report than the above graph. But it's always interesting to see how the scale of VC investment in cleantech, in relation to other forms of funding, stacks up against the attention VCs get in the media and elsewhere...

Arcadian’s $90mm Series A

Rob Day: April 27, 2007, 11:40 AM
  • "Smart grid" M2M wireless network developer Arcadian Networks announced the closing of the last tranche of their $90mm Series A round with an additional $30mm from Goldman Sachs. Other participants in the full round included Gilo Ventures and Clal Industries and Investments. For those with VentureWire subs, Jon Shieber had a nice write-up about the deal today, where he points out that Goldman Sachs has been doing a lot of smart grid investing lately.
  • In other news today, Michigan's non-profit group NextEnergy announced a mutual sourcing and support relationship with Nth Power. As part of the agreement, each group is pledging to send dealflow to each other, and NextEnergy will be helping any Michigan-based Nth Power portfolio companies to access in-state financial resources and business relationships. It's an interesting announcement, and shows one investment firm's answer to the challenges of coastal VCs interacting with more geographically-distributed clean technology startups. There are good clean technology solutions to be found all over...

Lamina Ceramics, Power Efficiency Corp, eMeter, Gordon Murray Design, LanzaTech

Rob Day: April 26, 2007, 4:35 PM
  • LED "light engine" developer Lamina Ceramics announced a $7mm round of financing, led by Easton Capital, and including existing investors Morgenthaler Ventures, Granite Global Ventures, RedShift Ventures, and CID Equity Capital. The solid state lighting industry has seen increased interest lately thanks in part to recent regional efforts to ban incandescent bulbs -- here's a good example... Lamina's focus is on bringing LED lights to market with sufficient brightness to replace incandescent bulbs for general illumination.
  • Power Efficiency Corp., which offers "cruise control"-type energy efficiency solutions for electric motors, raised a $4.2mm PIPE. Individuals, insiders and hedge fund Marathon Resource Investments provided the funding.
  • AMR software vendor eMeter announced a Series C financing, led by Foundation Capital. The amount of the round wasn't disclosed, but PE Week Wire reported it earlier this week as $11.79mm.
  • Gordon Murray Design Ltd. raised a $10mm+ Series A from Mohr Davidow and the Caparo Group. Matt Marshall has the scoop on what the venture is all about...
  • LanzaTech, which is pursuing a bacteria-based approach to the conversion of waste flue-gas carbon monoxide into ethanol, raised a $3.5mm Series A led by Khosla Ventures. Since the bacteria can process CO, syngas is also a potential feedstock. LanzaTech is based in New Zealand, and two local investors also joined the funding.
  • Useful sectoral updates: Progress on plug-in hybrids... A good summary of the potential for wave energy and the challenges for venture investors... The latest update on nanotech's potential regulatory and market challenges... And a good report from a recent MITCNC panel on energy storage.
Other news and notes: Check out the upcoming California Clean Innovation 2007 conference, coming up next month in Pasadena... Here's a great summary by Joel on some recent polling on Americans' attitudes toward environmental issues... The Cleantech Group continues to expand, opening up an office in London... Finally -- Amen, brother.

Q1 2007 numbers

Rob Day: April 26, 2007, 11:05 AM

Over the past week or so, many of the various groups who track venture capital investments put out their Q1 numbers. Below is a brief re-cap, for those interested. (For those interested in a discussion of the differences in the various approaches, see this previous posting)
  • As previously noted, the Cleantech Venture Network announced this week that Q1 totals for cleantech investing were $903mm across both North America and Europe, representing a 16.5% increase versus Q4 numbers and a whopping 42% increase on Q1 2006. In both regions, energy generation technologies were the largest category, with a little more than half of all capital going into that segment of the market.
  • Eric Wesoff's Venture Power newsletter reported $760mm of clean energy venture capital in Q1. Eric's always-insightful commentary notes that: "Q1 looked a bit like last year -- with a mix of investment sectors and a disproportionately high biofuel figure skewed by a few very large deals... [three of the deals] account for nearly half of the total. It is arguable that these deals don't qualify as VC investments despite the fact that they have VC investors -- they look more like project finance." Eric also notes that Venture Power has "joined forces" with Greentech Media, so "look for big changes in the coming weeks."
  • As provided by Dan Primack at PE Hub, the Moneytree (PWC/ NVCA/ Thomson Financial) survey for Q1 was also released. In the Industrial/Energy category they counted slightly more than $500mm of venture capital financings, a 20% increase on Q4, and a 75% increase on Q1 2006. This would make the category the fifth biggest category tracked, behind biotech, software, medical devices, and telecom. Across 44 tracked deals, the average deal size was higher than $11mm, which is an interesting contrast with the category's $6.2mm average deal size for 2005. 44 deals, however, is less than Q4's 50, and not that much higher than Q1 2006's 39. One useful feature of the Moneytree data is that they also track "first-sequence" financings (the first institutional investor money into a company). Among these first-time financings, Industrial/Energy was actually the third biggest category, at $176mm -- 13% higher than Q4 totals, but 145% higher than Q1 2006 totals. Intriguingly, the average deal size for these 19 earlier rounds was also quite high, at $9.3mm, versus 2005's average of $5.6mm. This suggests that while capacity deals may be inflating the sectoral totals as Eric descrbes, there may also be some significant additional rise in valuations...
  • E&Y and VentureOne also put out their quarterly survey results. Unfortunately for them, most cleantech still appears to be categorized as "Other" in their survey (really? still?). So we'll just leave it at noting that Q1 "Other" total investments were the highest for any quarter they've tracked since beginning in 2001. How much of that is cleantech is impossible to say... This press release seems to suggest that about 64% of the category total was in 10 "alternative energy" and 8 "environmental technology" deals. [4/26 update: Note additional info on this survey appended below]
  • We previously noted NEF's numbers here. They counted $2.2B total private equity financings into clean energy worldwide in Q1. That's 58% above Q1 2006 totals and 60% higher than Q4 2006. Helpfully, they note that the big totals were driven in large part by three major transactions: Silicium de Provence ($394mm) and Solyndra ($79mm) in solar, and Imperium Renewables ($113mm) in biofuels. Differentiating between VC and private equity, "early stage venture capital" was tracked at $303mm (23% higher than Q1 2006), with Series A and seed tracked at $80mm -- "almost double" Q1 2006, but around half of Q4 2006's $159mm. Interestingly, PIPEs grew sharply, at $446mm, about triple from a year ago. Also a little bit of a dampening in the IPO market, with $899mm raised in initial offerings.
[4/26 update: Received a very fast reply from Michelle Jeffers at Dow Jones VentureOne who reminded me that they do indeed break out cleantech venture capital in a separate set of reported numbers. In fact they are attempting to address the overlapping nature of clean technologies and other technologies via their methodology, something we've written about before on this site. So I wanted to post Michelle's email, since I hadn't done justice to the Dow Jones approach in the original column:

Hi Rob

Saw your post regarding our quarterly data.

I thought your parenthetical comments indicated that perhaps you thought we were not taking Cleantech investing seriously.

In fact we are extremely serious about our methodology and the recognition of the importance of cleantech investing and release an entirely separate report on cleantech investing with Ernst & Young on a regular basis, in addition to this quarterly data.

This quarterly report breaks down the rounds (and companies) into very specific single industries – in fact into approximately 140 different industry sub-segments, and from there even into even more subcodes. The companies we identified and made mention of in the press release in the cleantech field were in our Energy or Environmental segments, which, because they do not meet the exact criteria we set for IT, Business, Consumer and Retail products and services, or Healthcare, are considered an OTHER category. Of course, there are always judgments that must be made for the appropriate sorting when dealing with the volume of financings that we track.

That is why I want you to know that when we release our Cleantech data, we look at all companies throughout every industry from IT to Healthcare to Products and Services for aspects of cleantech in their business. I think you’ll find if you look at all our data releases that we take a very thoughtful and careful look at each venture-backed business—and we research them with direct primary contact with the companies themselves, to verify their financings and their business descriptions—before determining how they should be categorized, in our effort to provide the most accurate tracking of the venture capital industry.

... Thanks to Michelle for a very helpful and thoughtful reply. To see an example of the reporting she is referring to, see this write-up of their 2006 totals. rd]

Cleantech investors and carbon and RECs (pt 3)

Rob Day: April 20, 2007, 10:52 AM
It's been more than a week since the second installment on this topic (and you can find the first installment here), but if anything, it's an even more relevant topic after a week's worth of news developments. After all, as Kevin, a "serial entrepreneur", says in this WaPo column, "The venture capital community's appetite for green-tech deals has skyrocketed since the Supreme Court ruling."

Given the emerging momentum behind carbon and REC markets, and if it's true that carbon credit markets are particularly well-poised for significant growth in the US, what are investors doing about it?

Some are, naturally, investing directly into carbon sequestration-related technologies and startups like Kevin's. And not just into the sequestration technologies, but some investors are also investing directly into some of the financial service companies (see Sterling Planet's March funding announcement) that are looking to take advantage of the development of trading markets for RECs and credits.

Other cleantech investors are figuring out how their portfolio companies can position themselves to capitalize on these markets when they become more developed. In some cases, the venture firms are looking to partner with the financial traders who will eventually be active in these commodity markets, once they reach a viable point. One good example from last year is EnerTech's strategic partnership with Cantor Fitzgerald (note: link opens pdf).

Finally, cleantech investors are drawing their own judgments about how the shifting landscape in carbon credit and REC markets will impact the sectors they are interested in. At a high level, the emergence of a strong REC market favors electricity generation technologies, since that is the primary focus of renewable portfolio standards. On the other hand, the emergence of carbon emissions reductions credits may favor energy efficiency technologies, since the reductions are easier to quantify, monitor and verify than any reductions associated with "green" generation projects that may or may not be cannibalizing "brown" generation capacity.

The short answer is that both markets are developing, as we've discussed. But in the long run each investor's view of the strength of the eventual market for each type of financial product may color their perspectives on the technology sectors that will be looking to those markets as an additional source of value.

Either way, the inevitable emergence of carbon credit and REC markets is a major factor that all cleantech investors are focusing heavily on these days.

Deals announced this week:
  • Semprius, a North Carolina-based semiconductor manufacturing process startup, raised $4.1mm in venture financing from Intersouth Partners and Arch Venture Partners. The company's printing approach to semico manufacturing has potential applications in other similar types of devices, such as solar cells.
  • VentureWire also reported that solar test and measurement equipment vendor Solmetric raised a $250k angel round. Such equipment may be increasingly in demand with the implementation of performance-based (versus capacity-based) governmental incentives for solar.
Cleantech investors in the news:
  • The Cleantech Venture Network announced this week that Q1 totals for cleantech investing were $903mm across both North America and Europe, representing a 16.5% increase versus Q4 numbers and a whopping 42% increase on Q1 2006. In both regions, energy generation technologies were the largest category, with a little more than half of all capital going into that segment of the market. Other coverage this week suggested that European cleantech investments are falling behind U.S. activity. We'll dive more into the numbers next week...
  • A couple of smart cleantech investors with some cautionary words about the challenges to investing in the sector and the dangers of the "fad of the month" (er, carbon?), in this article.
Other news and notes: For those following the "smart grid" market and its implications for cleantech, the news of IBM's new coalition effort around the technology was another strong validation point... And GM may be taking the old "think locally, act globally" saying to a new level.

Smart energy gets a comp: Comverge IPO

Rob Day: April 13, 2007, 6:52 AM
For those (like yours truly) who find "Smart Energy" (IT-enabled energy efficiency and demand automation) technologies to be a compelling investment space, it will be very interesting to watch today's IPO by Comverge.

So far, so good -- trading in the early hours is above the $18/share pricing, which itself was a revision upward from earlier guidance. Apparently not everyone is convinced... But even if the price doesn't hold up over time, the exit is still a good validation for the entire smart energy space.