'Tis the season for VC predictions
, and the NVCA says that VCs still think the world of cleantech
, so what kind of cleantech VC blogger would I be if I didn't have a few predictions of my own...
But let's break with VC tradition and make some predictions with teeth. And then let's break with tradition further and let readers vote on them. No more VC "predictions" like "government will play a bigger role in cleantech" or other so-safe-its-useless bromides -- here are some predictions where I'm setting a quantified "over/under" and then readers are invited to click here to participate in a very brief survey to place your bets on whether I was high or low
1. As Michael Kanellos already wrote about
, I think it's likely that US cleantech venture dollar amounts could fall significantly in 1H09. That's because if you look at the Cleantech Group's totals over the past few quarters, the top 5 mega-deals have made up rougly 35-40% of the total. If those mega-deals and similar large late-stage deals are going to be particularly tough to come by (because VCs and others aren't able to count on near-term exits, etc.), then the dollar amounts could fall significantly even if deal volumes don't fall that much. Just a simple shift back toward more early stage investing would by itself drive the dollar amounts down significantly.
Thus, I told Michael I wouldn't be surprised to see the U.S. dollar totals fall 40%. But I've set the over/under at a 33% drop. What do you think?
2. I do think there will be a contraction in deals, but to a much lesser extent than the contraction in dollar amounts, for the reasons described above. Many investors have put on the brakes, but many still have dollars to spend, and early stage in particular seems to still be "okay".
For the U.S., I've set the over/under on the reduction in the number of cleantech venture deals from 1H08 to 1H09 at 20%. What do you think?
3. In regions other than the U.S., it will be interesting to see how things play out. Europe, for example, I expect to look like the U.S. in terms of drops in dealflow and dollars. But in the still-growing (albeit more slowly) economies of China and India, I think many generalists and even cleantech specialists may find a place to put down some bets where the natural resource shortage thesis still holds true and the underlying economic growth story looks better.
So for China, I've set the over/under on the growth in cleantech VC dollars (1H08 vs. 1H09) at 25%. What do you think?
4. All I have to go on is anecdotal evidence from my conversations with fellow investors, but it seems like VCs I speak with are now nodding their heads a lot more vigorously when I say that I think there's no way solar will continue to be 40% of cleantech VC dollars like it has been so far in 2008. There seems to be more interest in broadening into more of the cleantech market, and in particular more investors say they're looking at energy efficiency these days.
So I think the "hot" sector (as unfortunately, but necessarily defined by some loose combination of growth in deals and growth in headlines and VC quotes in stories) will be energy efficiency. What do you think?
5. Finally, I think that while it won't be at all unhealthy for the sector to see solar venture dollars decline significantly, overall dollar and deal tallies fall, it won't be reported that way. Journalists don't deserve the abuse they get from everyone (and mea culpa, guys... happy holidays to you, too), but still, they're incented to find controversial stories to write about, and the finer nuances of dollar amounts vs. deal amounts, etc., don't often make it past the editor.
So I think the defining headline of 1H09 will be "cleantech venture bubble bursts". What do you think?
Take the survey to add in your thoughts
, and we'll take a look back at it once we get into the new year to see how these predictions worked out!
Readers have continued to provide great feedback on the "What's wrong with cleantech VC?" presentation from @Ventures that I posted a couple of weeks ago
Reader P.S. of Massachusetts (who's been raising a Series B) writes:
I have found that most of the money is interested in early stage deals and not mid to late stage deals, which is different than the data you presented. One possible explanation is sector, that the vast majority of clean tech deals are solar-related so there is a lot of late stage activity there. In our sector (biochemicals), most of the companies are still in early stage (we're among the first to commercialize a product – already generating revenue). So my question, is your data solar-skewed?
Sure, if the overall industry is solar-skewed then the data will probably reflect that on all more general topics as well. But I don't think if you removed solar from the picture, the follow-on vs. early/seed stage picture would flip. Follow-on deals would probably still significantly outnumber the earlier stage deals. Does that mean early stage is dead? Of course not. So P.S.'s comment is a good reminder that these trends are only indicative of overall patterns, they're not absolutes. Early stage companies can definitely still find interested investors.
But I keep coming back to the numbers, which tell their own story. And also to the fact that the very large funds that have recently been raised "locks in" a late-stage focus almost by necessity -- if you have to deploy $400mm across a small number of partners, either you need to be writing large checks (which then steers you toward later stage deals), or each partner needs to be juggling a dozen board seats. Will there be a shift back toward earlier stage investments, esp. in 1H09? Probably. But it'll be tough for some of the bigger pools of capital to make that happen in any major way...
Reader M.J. of California writes:
Nice work Rob. I think many agree w/ you, but as you mentioned don’t talk about it publicly. Today it’s trendy and cool to do late stage cleantech investing…how the hell you get to that w/o early stage investing is the question – especially when it’s only been a category in earnest for the last 3-5 years and that’s being generous.
There've been some interesting comments on the original post as well, check them out
More comments, reactions and feedback are definitely welcomed. Supportive or not! It's great to get a dialogue going on these things. Either post your comments, or email me
-- I'll continue to post interesting ones I get.
It's also fascinating to see how the presentation points out five trends, but really everyone seems zeroed in only on the stage (late vs. early) one...