I'm at the Cleantech Forum in Boston this week.  As always, a great networking event, they've really honed the model here at the 23rd edition of the series.  For those of you into such things, you can follow various tweets on the conference, including far too many from yours truly, with the #cleantechforum hashtag...

It's notable, however, how few west coast investors are attending this event.  Now, bay area VCs are always pretty loathe to travel outside of the 650 area code, but still, it's clear that even fewer made this trip than would have this time last year.  Why?  Perhaps some travel budgets are smaller, especially for the smaller shops, but really this is instead an indicator that most VCs are just really inactive on new deals and fundraising right now.  If an investor is actively seeking deals and/or LPs, they'll use a conference as an excuse to travel somewhere for networking purposes.  Which means that conference attendance by VCs is a bit of a leading indicator.

It's an important indicator, because cleantech venture capital doesn't seem to have been too badly hit yet.  Not to say things are easy for cleantech entrepreneurs right now, by any stretch.  But still, according to the Cleantech Group's numbers described at the conference today, in Q3 cleantech became the #1 venture capital category, above IT and biotech, etc. (details to follow on that once I get them).  And while there have been some companies that have gone under over the past 12 months or so, most continue to chug along one way or another.

But for the most part, most VC-backed cleantech startups remain net negative on cashflow.  Which means they're going to need either a rapid market pick-up translating into very near-term revenues, or else they're going to need to raise more capital.

My strong sense, watching the reported deals from the past few months, is that a significant portion of those deals that are taking place (and thus are captured in those Cleantech Group numbers) are insider-only rounds.  I wouldn't at all be surprised to see about half of the deals being such.  This means that most of the rounds taking place are not being priced by the market, it's instead just existing investors putting more money into their portfolio investments, likely at flat valuations or unpriced bridge financings.  Anecdotally, I can tell you that most investors are still refusing to take down valuations on their own portfolios, and yet only looking at follow-on deals that are at down valuations. 

These insider rounds, including many more that probably haven't been announced, are what have been allowing cash-burning cleantech startups to survive, in other words. 

And they can't continue indefinitely.  VCs don't have unlimited funds, and many at this point are starting to feel out of dry powder.  They'll only have so much patience and so much capital they can devote to any one portfolio company.  And with VC fundraising on hold, we shouldn't expect to see VCs be refreshed with capital anytime soon.

I'm not trying to sound too doom-and-gloom, we're not talking about some kind of mass extinction event.  Certainly, government support is going to help some companies survive.  And for those companies and investors willing to take a down valuation, there are still some investors out there willing to step in and carry the torch. Even a slight recovery of the credit markets could also help some startups raise non-dilutive growth financing.

But my point is that, while we haven't seen a massive wave of cleantech startups crashing yet, the factors underlying that are drying up.  And so I expect to see many more unfortunate stories over the next 12 months, even if the economy appears to be slowing getting better.  And if the economy twitches back downward... batten down the hatches.