Rob Day | April 20, 2007 at 10:52 AM 2 Comments

Cleantech investors and carbon and RECs (pt 3)

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.

• Superprotonic, a developer of solid acid fuel cells, closed the first tranche of a $16.2mm Series B round.  The round was led by US Venture Partners, and included Dow Venture Capital and existing investors CMEA Ventures, Nth Power, Hydro Technology Ventures, Battelle Ventures, Innovation Valley Partners and OnPoint.
  

• 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…
  

• The Keiretsu Forum, a well-known angel investor group, announced the formation of a Cleantech Investment Committee.  Early stage angel investors can be a critical resource for new cleantech startups.

• Kleiner’s Randy Komisar is predicting billion dollar cleantech IPOs soon.  One of the first may be Imperium Renewables, which Venture Wire today reported is gearing up for a ~$1B public offering.

• 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.