Rob Day 07 30 08, 6:47 AM

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Fascinating trends and provocative questions

With a column title like that, I’m sure to under-deliver, but here goes…

A couple of recent trends I’ve noticed that are worth highlighting:

1.  “Super angels” seem to be taking an increasingly important role in the world of cleantech venture capital these days.  By using this term, I mean family offices, foundations, etc., so “angels” is kind of a wrong term, but the point is non-traditional institutional investors representing high net worth and/or mission-oriented investors who may or may not have the same IRR goals as traditional VCs.  This is potentially a really healthy development in light of the capital gaps we’ve noted before, but it’s also simply noteworthy just how much more active these kinds of investors are becoming, particularly regarding direct investments (versus indirect placements in VC firms, etc.).

2.  There seem to be an awful lot of stories in the various online rags these days about cleantech startups that are SEEKING big rounds of financing, versus the more typical silence about fundraising until the money is actually in the door.  It’s interesting, because usually privately-held companies want to be much more quiet about their growth plans, for competitive reasons.  Does this trend represent a PR strategy shift to raise the profile of companies ahead of big rounds of financing, ignoring competitive impacts?  Does it show that companies have been struggling to raise these big rounds, and are forced to go advertising to harder-to-reach investors (like, perhaps, Super Angels)?  And/or does it simply reflect a more competitive green business media space these days, where the reporters are digging more and more to get “scoops”?  Perhaps some of these journalists could chime in with their perspective on why the shift is happening, but at least on this site we’ll continue to err on the side of discussing actual deals and not just passing along fundraising advertisements…

• Aptera raised a $24mm Series C round, with investors now including Idealab, Esenjay Investments, The Simons Family, The Beall Family Trust, and Google.  This syndicate is a good example of the first trend noted above…

• Waste Remedies raised a $7.5mm second round of financing led by Advantage Capital Partners, working in partnership with Southwest Bank.

• Intel Capital put $12.5mm into specialty chem manufacturer Voltaix.

• Clean Technology Investor reported that MBA Polymers has raised a $40mm round of financing, co-led by Citi Sustainable Development Investments and Honeywell Capital Management.  The company had last raised $20mm in the spring of 2007.

• Lamina Lighting is being sold for $4.5mm (with an additional $10.5mm possible in 2010 based upon 2009 sales performance)—the company had raised over $40mm in venture capital financing, including $7mm a little over a year ago.  Even with fast-growing markets, this stuff just isn’t easy, and we can soon expect to see more companies (especially those with high cash burn driven by aggressive market adoption expectations) shake out across hot sectors like lighting, solar, biofuels, etc.

Speaking of this cleantech VC “thing” not being easy, in today’s PE Week Wire, Dan Primack asks a provocative question:  “What I’ve been pondering… is about the new class of cleantech investor, and if there are enough experienced bodies to satisfy the VC market’s appetite.” In other words, does sector-specific deals experience matter in cleantech venture capital, and if so, is it a limiting factor.

As we’ve discussed here before, generalists coming into cleantech aren’t dummies, when they jump into the sector and begin engaging with cleantech investors and startups they can bring a lot of quite valuable and often complimentary skill sets and networks, etc.  So while sector-specific deals experience probably does matter, generalists can quickly get up to speed in a couple of targeted markets, especially when they look to co-invest.  We’ve co-invested with smart generalists and look to continue to do so when appropriate, because so many cleantech opportunities overlap into other more traditional investment sectors (think batteries and consumer devices for one illustrative example of such overlap) that the teamwork can be quite powerful.

The real challenge comes from the fact that cleantech markets are so broad and diverse, that even after spending most of my career in these markets, and several years now as a cleantech specialist investor, I’m still learning all the time about new technologies and applications I hadn’t previously had exposure to.  There’s a multi-year learning curve even for the smartest investors, and so naturally new entrants to the market will have to either pick one or two sub-sectors to focus in on for their first few deals (and for the most part they’ve tended to go where the action already is—solar, et al), and/or go later-stage as follow-on investors backing already well-established companies even if still pre-revenue.  IMHO, this dynamic is a major reason why we’ve seen these waves of over-heated activity in late-stage and in certain narrow subsectors within cleantech, even while the overall cleantech investment sector remains underinvested relative to the amounts going into other tech sectors (the “health care venture bubble”, as I jokingly refer to it).   The new entrants are naturally driven in these directions.

Dan does posit a potential counter-argument, that the cleantech sector is so “easy” to find good investments in, that experience doesn’t matter—to paraphrase, that anyone can fall out of bed and find good cleantech venture investments.  I’m not sure how well that hypothesis will survive the next 12 months, but it’ll be fun to track…

Readers are encouraged to get back to Dan with their own comments, and/or to leave comments here.

• Cleantech investors in the news:  Over the past week, two more firms announced plans to ramp up cleantech investing activity, U.S. Venture Partners and Highland Capital…  Also, Global Environment Fund is expanding into India.

Other provocative questions:  Is nanotech finally ready to get real?...  Are all the low-hanging carbon offset fruit plucked already?...  And finally, are VCs really this dumb? (ouch)