Since the beginning of 2005 there have been something close to 700 cleantech venture capital financing rounds in North America (using a broad definition of "cleantech", of course). Even accounting for multiple rounds per startup, this still means several hundred venture-backed cleantech startups have been invested in since the uptick in VC interest in the sector, around 2004 or so.
And yet there haven't been many exits (good OR bad) since this dramatic upswing started. That means a lot of venture dollars have gone into a lot of companies, with investors still waiting for their returns. Sure, there have been some good indications of favorable exit potential: IPOs like Sunpower, Hoku, Metabolix, Comverge and EnerNOC, and M&A exits like Powerlight and Celunol. But I took a quick review through a popular venture capital database, which revealed less than 20 IPO or M&A exits for U.S. cleantech venture-backed companies that had taken in their VC dollars since 2004.
Furthermore, a shake-out hasn't occurred either. That same database scan revealed only 3 bankruptcies among U.S. VC-backed cleantech startups.
These numbers are probably a bit understated on both sides (there have definitely been more M&A activity and more foiled startup efforts than recorded in the database in question). But the point still stands: There are billions of dollars of cleantech venture capital dollars already out there, and a pretty deep inventory of existing portfolio companies being managed, while the track record for sectoral exits is only now starting to come together.
2008 will see this story start to emerge. Particularly for some of the high-profile cleantech startups that have taken in very large amounts of venture capital investments and yet still haven't started generating revenue, the clock is ticking, and 2008 will be a "make or break" year. We're already starting to see some of the first indications of this pressure:
Top management changes at Miasole (self-"promotion" alert: yours truly is a shareholder), Greenfuel and Imperium, as well as stories about layoffs at some of these and other cleantech startups. Expect more of the necessary shake-out in 2008, especially in particularly heavily-invested sectors...
On the other side of the coin, numerous startups that have been making progress for a while now are primed for some kind of exit. If the economy is good, strong IPOs and acquisition binges by larger strategic buyers could mean very good things for the industry.
If the economy turns south
as many expect, however, we could see the exit window fail to open as hoped, and thus a raft of potentially valuable companies run through their capital and be forced to either take in dilutive new financing rounds, or shut down.
This is one reason why many VCs say that capital-efficient startups with management teams focused on achieving cashflow break-even will often have a better chance at being successful investments -- even if the "swing for the fences" efforts get all the headlines. Because it can be very difficult to plan out years ahead of when the exit windows will be open or not. So it's best to have the company able to self-support and continue growth, until the windows open again...
In any case, as previously mentioned, 2008 will probably see the beginnings of the exit cycle for this latest surge in cleantech investing -- some good stories, some not so good. Hopefully mostly the former, but definitely more of both than we've seen to date.
Deal announcements from the past week:
- VWire's Jonathan Shieber wrote this week that Khosla and GreatPoint Ventures have invested an undisclosed amount of financing in Ethos, a Cambridge, MA company developing ethanol projects in Latin America.
Other news and notes: Michael Kanellos at News.com
thinks 2007 was an off year for Kleiner's "greentech" efforts, but Al may disagree...
Green bricks? Cool...
An interesting review of the past year in green transportation tech...
Last (and least),
this may give you a year-end laugh.
If you're in the Boston area, save the date of the next REBN-East happy hour, Jan. 22nd at the Muddy at MIT, co-sponsored by the Clean Energy Council...
Also, don't forget to take the Cleantech Investing readers survey -- you only have a day or so left to put yourself in the running to win a GreenTech Media USB stick or a Powerit Solutions mug!
Finally, a very happy new year to everyone, our heartfelt thanks for continuing to visit and read this site, we hope it continues to be useful... Best wishes for a clean, green, peaceful and successful 2008!
