It's always fun to see how the mainstream journalists over-react to the latest short-term numbers, and how their editors feel compelled to over-dramatize every headline.  Thus last week we saw an article in the NYT with the headline "Clean Tech's Future Dims as Financing Drops Off."  Taking the very worst of the Q1 numbers we discussed a while back, the article literally asks:  "Has the green bubble burst?"  And paints a picture of cleantech funding drying up in the aftermath of a "hype cycle" and entrepreneurs being left out to dry.

Huh?

As we've discussed, the quarterly numbers are significantly down, but at a rate pretty comparable to what happened to venture capital overall.  The whole economy came to a crashing halt, after all.  It's not easy times for entrepreneurs, but it's not like there aren't deals being done (in fact, see below).

And what bubble in the first place?  Was there a solar bubble?  Most probably -- as we've talked about here for a while now, the solar sector got frothy in 2007-2008, as the quotes in the article reflect.  Was there a corn-based ethanol bubble?  Definitely.

But to simply declare that there was a "green bubble", as if solar and biofuels made up the entirety of the investment opportunities in the sector?  I don't know any investors arguing that sectors like water, energy efficiency, agriculture, etc. are over-capitalized.  At least not yet (stay tuned). And smart investors have always had a broad view of what "cleantech" (or whatever phrase they prefer) means.  So a bit of unnecessarily breathless reporting.

But what else would we expect from an industry with such a dim future as print newspapers?

So let's take the opportunity to mention all the deals from the past few weeks:

• Extremely pleased to report that Powerit Solutions, a Seattle-based vendor of automated smart grid solutions, has raised a $6mm round of financing led by Siemens Venture Capital, and including new investor ArcelorMittal's Clean Technology Fund, alongside existing investors @Ventures and Expansion Capital Partners.

• Superconductor vendor Zenergy Power announced a GBP 9.5mm PIPE (note: link opens pdf) from new and existing investors.

• Altira led with $10mm of a $30mm round for EPS Corp., an ESCO / energy intelligence services provider.  Existing investors NGEN and Robeco also participated.

• China's Chint Solar has raised $50mm from investors including Cybernaut Growth Fund and Shanghai Alliance Investment.

• Nanomaterials startup SDCmaterials, with emissions control and other cleantech applications, has raised a $14mm Series B (note: pdf) led by Invus Financial Advisors and including existing investors Emerald Technology Ventures, BASF Venture Capital and individual investors.

• ImageTree Corporation has taken in an undisclosed amount of strategic investment from In-Q-Tel.

• Israel-based ETV Motors has raised a $12mm first round of financing from Quercus Trust and 21 Ventures.

• Demand response / energy efficiency service provider CPower (fka Consumer Powerline) has raised a $10.7mm Series B led by new investor Mayfield Fund, and including existing investors Bessemer Venture Partners, Expansion Capital Partners, Schneider Electric Ventures, New York City Investment Fund and Consensus Business Group.

• Carbon capture technology developer Powerspan announced new financing of "over $50 million" (note: pdf) from new investors George Soros, Tenaska Energy, Inc., AllianceBernstein LP, and Persimmon Tree Capital LP, and returning investors NGEN Partners LLC, The Beacon Group, The Tremont Group, RockPort Capital Partners LP, Calvert, Angeleno Group, Fluor Corporation, and FirstEnergy Corp.

• Plastics-to-crude developer Plas2Fuel raised a $4.25mm first round of financing from Chrysalix, Saffron Hill Ventures and Reference Capital Management.

• Ausra raised $25.5mm in a new "equity facility".  New investors KERN Partners, Generation Investment Management and Starfish Ventures joined existing investors including Khosla Ventures and Kleiner Perkins.

• Green chemicals startup Glycos Biotechnologies has raised a $5mm Series A led by DFJ and DFJ Mercury.

• Luxim raised a $12mm insider Series C.

• VentureWire reported that Crystal Solar raised a $10mm Series A in July of last year, from Oceanshore Ventures LP, Scatec Adventure LS, SIIF SARL of France, and David Bostwick.

• Solar-to-hydrogen startup Sun Catalytix has raised a $700k seed financing round from Polaris.

• A123 took in an additional $69mm in a round led by GE, with $15mm.  Other investors were not disclosed.

• LED cooling company Nuventix has raised $4mm to close out an $18mm Series C originally announced in July of last year.  Braemar (at $3mm) and Uniquest ($1mm) provided the new financing.

• Smart home vendor EnergyHub announced an undisclosed amount of Series A from .406 Ventures and Physic Ventures.

 

Ah, memories.  Remember way back when I had to devote significant writing on this website to the question of whether there was a bubble in cleantech or not?  And by now, it's starting to look like even my fairly pessimistic 1H09 cleantech venture dollars predictions may have been a bit optimistic, given that Jan-Feb investment totals were on a pace of less than 50% of 2008 annual totals. What we're seeing now is an anti-bubble.  It's across the entire economy, and in fact cleantech appears to be more insulated than many other sectors, but people just aren't putting money out there. In their March 7th issue, The Economist declares: "A share's value must be the present value of all future dividends -- otherwise stockmarkets would be a giant Ponzi scheme."  But that's exactly what has been happening across a wide variety of financial asset classes since the mid-80s.  It was driven by an oversupply of capital, due to a combination of loose monetary policies and the massive exportation of capital by fast-growing Chinese, et al., economies.  We've had 20+ years of one bubble after another in various asset classes, most recently from dot-coms to housing to corporate debt, with only a couple of hiccups along the way. The definition of a Ponzi scheme is one where the fundamental value of what's being invested in is irrelevant -- the only assumption is that the buyer will be able to find another buyer willing to pay even more. With the oversupply of capital we experienced for so long, it had to find places to go, and so we had bubbles where investors weren't paying attention to the underlying fundamental values of the assets they were buying.  Or fooled themselves into believing that "this time it's different".  Whatever.  Basically, to use the stockmarket example cited by The Economist, investors stopped caring about the dividends of stocks.  They just thought someone else would be willing to pay more for the stock later -- why? We started to see a bit of that in some subsectors in cleantech, most notably in solar panel manufacturing and food-based biofuel production.  Why was such-and-such thin-film solar company valued at over a billion dollars pre-money for a private equity round?  Because the investors felt that someone else would be willing to pay even more within a couple of years.  And certainly some of that behavior was also seen in the publicly-traded cleantech shares out there. So these bubbles, including in some cleantech sub-sectors, were the result of too much capital chasing into a "hot" market and getting away from the underlying fundamentals.  And now, we're experiencing the same category of problem but in the opposite direction:  Too little capital is available, and still everyone is getting away from the underlying fundamentals. But in cleantech we really are seeing some tremendous business opportunities.  Technologies at a commercialization stage, targeting big markets with huge unmet needs.  Our global natural resource shortages aren't going away, and while energy prices are temporarily depressed given the severity of the downturn, few expect them to stay low over the long run.  Cleantech startups selling cost-saving technologies still getting good revenue traction.  And of course, a huge influx of government support on the way to anyone with the potential to grow green collar jobs. Yet, right now many cleantech venture investors just aren't putting money out there.  Some are in a bit of maintenance mode, stretching out their existing funds rather than go out to raise a new fund right now.  Others are simply waiting for "the bottom".  And that means I see a lot of strong cleantech companies not getting funding.  Good companies with good revenue growth since their last round, looking at a down round this time.  Startups with capital-efficient business models and compelling customer economics, talking to VCs who say they're looking for capital efficient business models and compelling customer economics, but not getting term sheets. This means there is a strong buying opportunity out there right now in cleantech venture capital.  An opportunity for bold investors with available capital (and discipline and patience) to come in and find great companies to back, with a lot less competition than they would have faced a year ago. Yes, the economy means that some of the fundamentals have changed and deal valuations should be lower.  And yes, high cash burn is now justifiably out of style.  But there are still more great deals available right now than there are deals getting done. So consider this a call-to-arms for the entire cleantech venture community.  Let's get out there, and grow some great businesses.

The cleantech venture capital model isn't broken, but some investors sure are stretching it as hard as they can... In the three and a half years that I have been writing on this website, it's fascinating (at least to me) to go back and see how things have changed in the industry, and in the messages in my writings. At first, I started writing about a small niche in venture capital that no one else was even reporting on, so the purpose of the blog was to simply compile the news and some views in one place since that was lacking, and since friends and family had no idea what this "cleantech" thing was that I kept talking about. Then, as the sector started getting more and more interest, it was great to see all the influx of new investors (both generalist and specialist) in the sector, which brought along entrepreneur and innovator interest, LP interest, etc.  The writings on this site reflected a wave of excitement about the sector. The wave of new capital entry then naturally spawned journalists' questions about "bubbles" in the sector, and so the writings on this site started to explore more of the ins-and-outs of what is really going on behind the high profile deals and sectors, getting past the headlines to break down the numbers, etc. I still believe that there is not an overall bubble in cleantech venture capital, this investment sector has so much room to grow and the other market fundamentals are so healthy that cleantech/greentech will remain an attractive investment area for many years to come.  And I still believe that the entry of experienced investors into the sector is a very good thing.  Not only does it help build out the ecosystem in very healthy ways, it also means more smart minds and deep pockets and valuable networks around the boardroom table.  Having co-invested with specialists and generalists alike has only reinforced my conviction that cleantech investors should be welcoming new entrants with open arms and continuing to work together, because of the special conditions and specific factors at work in this sector. When I joined @Ventures two years ago, one of the major reasons I chose this firm was the senior investment team, who had not only been investing in cleantech as specialists since 2004, but also had a deep background in venture capital going back to 1995 (hence the "@" in the firm's name, a legacy feature).  And what they brought from that experience were some valuable (and at times, painfully learned) lessons about what venture capital needs to look like in order to produce the outsized returns limited partners expect to see when they put money into venture capital, given the high risk nature of the category. So there's a very deep set of experiences around the team in both cleantech and venture capital.  And what we at @Ventures have started to see in the cleantech venture capital sector are some unhealthy and likely unsustainable trends.  Not undermining the overall cleantech VC investment thesis, mind you, but some specific trends within that opportunity that bear watching closely:

1. The shift to larger and larger funds.
2. The related shift to later-stage investing.
3. The related shift into capital-intensive subsectors and business models within cleantech.
4. The mismatch of investment concentration with the geographic dispersion of cleantech innovations and innovators.
5. The concentration of venture capital investments into just a few subsectors, while the lion's share of subsectors receive much less attention (much less dollars) from investors.

In preparing for an upcoming, small limited partner event I'm speaking at, and after several months of team discussions on what we're seeing in the industry, we pulled together a slide deck bringing this all together. The conclusions we draw aren't conventional wisdom right now, so this presentation may be a bit controversial.  And certainly not everyone will appreciate our thoughts, given how we're clearly not fans of the direction most of the industry is currently headed in. Frankly, there are some money-losing trends in the industry right now, and not everyone will enjoy having someone publicly say that.  But the data speaks for itself. So I thought readers might enjoy taking a look at the presentation and drawing their own conclusions. To be clear, as a former late-stage investor myself, it's not that I'm skeptical of the very concept of growth stage investing in cleantech, which plays an important role and will see some successes.  And believe me, I'd love to be able to drive to a board meeting here in the Boston area rather than take my monthly trips to board meetings in more out of the way places like I do.  But the magnitude of the shifts we're seeing aren't healthy in the aggregate. We've seen this movie before, and it doesn't end well. So I hope this starts a dialogue.  Comments, questions and flames are all welcomed. Leave comments below, or email me. . . . . .

Jeff Bussgang (of Flybridge, and focused on internet investments) wrote a very interesting column over at PE Hub yesterday (sub req'd), where he made a few arguments about the overall VC environment right now that are worth noting:

1.  Valuations are dropping to the point where "it will be a privilege to close a flat round with an outsider." 2.  The impact is felt hardest on Series B and Series C rounds because "almost no one is paying up for pre-revenue companies never mind fast growth revenue companies."  (Not sure what "never mind" means in this context) 3.  All this is because exit assumptions are being pushed back by 2-3 years, and therefore investors will need to plan on startups requiring significantly more capital to get to that exit. 4.  Because of the additional reserves thus necessary to keep in hand, VC new deal activity is likely to dry up a bit as they target fewer deals with their remaining cash available.

This is all very well articulated and generally smart, and may be holding true for VC overall, but I don't believe it's entirely accurate for the cleantech sector in particular.  Let's take the points in turn: 1.  Valuations are dropping, but anecdotally at least I'm not seeing a lot of cram-downs, at least not yet.  Now, there are definitely some exceptions, and I think we certainly will see some high-profile down rounds, downward valuation pressure, and some smoking craters.  But it's unclear in which stages they'll be most felt.  If you look back at what I wrote a couple of months ago, my feeling is that the really high-flying, high cashburn businesses will be hardest hit, as the "pre-revenue mezz rounds" are the ones most likely to be affected by exits being so slow.  So far I think I've been mostly right (for once!), which brings us to point #2: 2.  Bussgang posits that Series B and Series C will be the hardest hit.  What he really means to say is that Series A valuations aren't seeing as much downward pressure, I don't believe he meant to be so specific about stage, he was just drawing a distinction between Series A and follow-on rounds.  But I think he missed the mark a bit, because Series B rounds appear to still be going strong. I did a very informal and probably inaccurate tally of the rounds mentioned on this site for Oct/Nov versus those for Aug/Sept.  If Bussgang's take is accurate in the cleantech sector, we should be seeing a drop-off in deal numbers for both Series B and Series C, with Series A remaining strong. Well, 2 for 3. _________Seed+A____SerB_____SerC+__ Aug/Sept          23               17                17 Oct/Nov           29               14                 8 It's a small and unscientific dataset that was probably mishandled by yours truly along the way, but it sure looks like Series A and Series B both have held up in terms of deal count, while Series C and later is what has dropped off. And for the valuations for Series B?  Well, it's darn near impossible to get a read on this, for the obvious reason that no one reports valuations on venture rounds.  But we do have a very general indication from assessing round SIZE, which should be somewhat (weakly*) correlated to valuation.  And for Aug/Sept the median Series B round size in my dataset was $16mm, whereas for Oct/Nov it was $18mm.  With such a small data set that's pretty fuzzy in terms of results, but at least what it DOESN'T show is some kind of dramatic contraction in Series B round sizes which might be a very loose indication of valuation decline.  Notably, the Aug/Sept Series B rounds included 5 rounds of $40mm or more, versus only 2 such rounds in the most recent period, so the mega-rounds might be taking a hit in particular... It's tough to draw too many hard conclusions from all of this amateurish and very quickly done analysis, but at least the above numbers don't lend any credence to the idea that Series B rounds in cleantech are showing any overall decline in terms of dealflow or valuations.  Big-ticket rounds of any moniker, and Series C and later rounds, however, might be demonstrating some of what Bussgang is talking about... 3 and 4.  No question, everyone is thinking about keeping more reserves around for follow-on rounds for their companies, and I've spoken with several investors who are slowing down their new dealflow in order to keep their powder dry.  It does seem like entrepreneurs are having to work harder to pull syndicates together as a result.  So I think Bussgang's spot on with his third point about the effects of a longer exit horizon in this regard. But I don't get why the companies will necessarily need more capital to reach an exit.  The aforementioned investors who are keeping their powder dry are doing so just so they don't have to worry as much about an outside investor stepping up at the necessary time for a follow-on.  But Bussgang's point about the startup themselves needing more capital (as opposed to existing investors putting in a greater share of additional required capital) makes the assumption that companies will be cashflow negative (in his back of the envelope calculations, it's to the tune of around $10mm in net cash burn per year) all the way through to an exit. But smart entrepreneurs are already figuring out how to get to cashflow breakeven as quickly as possible, if they're not already there.  So I'm a bit confused by his example... Both Bussgang and myself are engaging in nothing more than speculation at this point, and this is one of those things that will also be very case-by-case whereas we're dealing in broad generalities.  Plus, his internet investment world looks different in several key respects from cleantech, in ways that mean we may both be right.  But I bet that when the numbers do eventually come out next year, we'll see that 2H08 was a period of contraction in late stage cleantech venture capital, particularly for the really high-profile, high-valuation pre-rev deals... but much lessened impact on Series A and Series B.  How will that play in the headlines?  "Cleantech venture dollars take a significant hit!!!"  Hey, reporters gotta do what they gotta do.  But look at the details to see how it actually plays out. (*My use of round size is a really desperate move, because obviously valuations shouldn't really be tied to round size.  For example, if the Series B round sizes have stayed the same, but now they typically get 1/3rd of the company whereas they used to get 1/4th of the company, the analysis breaks down.  But on the whole, I think there's some value in extrapolating based upon this data.  So reader beware...) . . .

There's a lot of uncertainty right now about how the global financial turmoil will affect cleantech VC over the near to medium term.  I've seen news stories (mostly looking at backward data) talking about how cleantech has been insulated from the downturn, and I've also seen news stories suggesting the sector is about to drive off a cliff ala Toonces. So in the current context, it was a real joy getting to be one of the judges for the energy track of Saturday's MIT Elevator Pitch Contest.  A bit of a different format from the many other bplan contests I've judged in the past -- in the EPC, we blitzed through over 20 presentations in under an hour, as each student/entrepreneur had 60 seconds to make their best pitch and then the three judges got to ask 2-3 quick follow-up questions.  The presenters in the energy track weren't all from MIT, but were all students, typically grad students either at the business school or in labs somewhere, and often representing a team with a mix of both. What made it so fun for me was how impressive many of the ideas were.  Granted, we didn't get a chance to dig into the details, but in terms of seeing a couple of dozen young entrepreneurs who've come up with some potentially exciting and lucrative and innovative business concepts, it was quite encouraging to see.  And a great variety of details -- from nifty combinations of distributed computing with heating/HVAC to waste-to-energy to ultracaps, while solar and fuels were represented, the breadth of innovation was terrific. So while the sector seems like it's going to slow down a bit here over the near term, at the innovation stage things looked really healthy this weekend, at least. Meanwhile some more numbers came out and confirmed that Q3 was pretty solid for cleantech VC in the midst of a general VC slowdown.  VentureSource tracked 583 US financing rounds totaling $7.3B in the quarter, of which 32 financings were in cleantech, totaling $1.1B.  Obviously the cleantech totals were dominated by a few huge deals, which was a consistent message across the other tallies we discussed a couple of weeks ago as well.  But in this VentureSource survey it's still remarkable to see 5.5% of deals but 15.1% of dollars attributed to the sector.  It's also remarkable to see that the Cleantech Group tracked 77 US cleantech deals while VentureSource only tracked 32.  Then, too, the Moneytree survey came up with 73 cleantech deals in the quarter...  It remains very difficult to tie together the various data trackers in the sector... Deal announcements were pretty slack over the past week.  A sign of things to come?  We'll have to see.

• GTM's latest Funding Roundup here.

• Lighting controls developer Adura Technologies raised a $5mm Series A, co-led by VantagePoint and Claremont Creek.

• CPV startup Soliant raised a $21mm round led by Convexa Capital and including $2.5mm from GE Energy Financial Services and investments by existing investors RockPort, Nth Power, Trinity Ventures and Rincon Venture Partners.

• PV startup Innovalight took in $5mm in debt and equity financing from Leader Ventures and SVB.

• CleanScapes, a revenue-stage waste collection company, took in a $10mm Series A, including $1.6mm provided by SJF.

• Downturn watch:  Tesla is scaling back and Elon is taking the helm, with the goal of being cashflow positive within 6-9 months...  In this survey, 55% of tech leaders feel the IPO window won't re-open until 2010...  And CTI reported last week that Global Solar has canceled a planned private equity round.

Other news and notes:  It is well worth reading this "tough love" column from Neal Dikeman, cautionary words for VCs in the sector...  And here's a good article regarding the Transmission capacity constraints holding back growth in wind power.

So much for that economic stability we wistfully discussed last week. With the economic forecast for the next 18 months looking pretty grim, energy prices have begun to fall sharply, led by oil, which is now back down below $80 per barrel.  While I often point out that oil doesn't dictate ALL our energy prices (not much of our electricity comes from oil, for example), in this case the causality between oil prices and electricity prices is the same: the downturn reducing economic production and thus consumption of energy.  So I would expect that we'll see (to a lesser and more delayed extent) traditional energy prices fall across all categories. In addition, the economic downturn -- and in particular the current instability -- is probably making it more difficult for any potential cleantech customer to pull the trigger on any large capex item. Even when the purchase of, say, a new piece of clean water equipment would make economic sense (in terms of payback) for a food and beverage producer, they might be putting such decisions on hold until things at least settle down a bit.  However, when things do settle down, such cost-saving opportunities might get even more attention than they were before.  Higher-cost purchases done primarily for "green marketing" purposes, on the other hand, will be a tougher sell... Here's one man's two cents' worth, in terms of what I expect to see happen in cleantech venture capital over the next six months.  This is just my own speculation, so take it for what it's worth.  But:

• I think there will be a hiccup in cleantech market revenues, followed by a period of slower growth.  Anyone selling capital equipment will likely see a temporary slow-down in order flow as customers wait for some basic stability to emerge out of what's going on right now.  Technologies on the production side (i.e., power generation or liquid fuel production) will be hit harder during the slow growth period to come, as lower demand means both an impact on their economic value proposition (example: ethanol costs will be less-advantaged versus gasoline costs) and an impact on them as big-ticket items.  Technologies on the consumption side (i.e., energy efficiency) will be faster to recover if they can be sold as an expense and not as a capital budget item.  Clean technologies will generally do better than other tech sectors -- I expect cleantech markets will continue to grow -- but growth rates will be impacted negatively.  The recently-passed federal incentives will help with this, fortunately.

• The big growth in "venture capital dollars" flowing into this sector has been led by later-stage deals, with large, high cash-burn, capital-intensive efforts building out capacity with an expectation of an exit (hopefully IPO) in the relatively near term.  E.g., all the recent big-ticket thin film solar deals...  It's no surprise to see Schott Solar cancel their IPO.  With the exit window temporarily shut and with most of these deals going into technologies on the production side (see the above point about those getting hardest hit), I think it's likely we'll see Q4 show a big drop-off in such headliner deals, and thus that the aggregate dollar amounts going into cleantech VC will show a big decline from Q3's record numbers.  But it's important to realize that that will mostly reflect just a small subset of cleantech VC deals -- the mega-deals, the later-stage deals.

• The more interesting thing will be to watch what happens to early stage cleantech venture deals.  We'll have to see, but my expectation is that the pace of early stage cleantech venture deals will decline, but not fall off a cliff.  There will likely be some evidence of a bit of a pause as everyone digests this current period of instability.  But the simple facts are that early stage cleantech VCs are investing for exits several years out, not for the near-term.  And they have funds to deploy.  And entrepreneurs continue to come up with good ideas, addressing critical needs and large, growing markets that aren't going away.  So I think (guess?) Q4 will see a moderate decline in the number of cleantech deals overall, a bit of a shift into earlier-stage investing, and a big decline in aggregate dollar amounts.  And early-stage will be the first to pick back up going forward.  Early-stage cleantech venture capital remains a very attractive investment area.

• As we saw this summer, when the exit window does start to re-open, cleantech will probably lead the way.  When will that happen?  I can't say.  But I do think that even an economic downturn wouldn't stop some good cleantech exits from taking place.  Instability shuts the exit window for everyone, but even a recession -- if stable -- could see some good exit activity, if somewhat less than might have been hoped.

• Nevertheless, I think we're going to see some big-name cleantech startups implode.  Some companies that have chosen a supernova growth path of high cash burn with the expectation that revenues will quickly ramp up and massive amounts of follow-on funding (via IPO, many hoped)...  Any such companies that needed to see an IPO over the next 6 months are going to be hurting.  Especially those who had taken on large amounts of debt as well.  Some will muddle through.  But I think it quite likely that we'll see some high-fliers not be able to make it through the next six months, or however long it takes for the later-stage investing and IPOs to pick back up.

• The above points are a mixed bag, reflecting the mixed reality I expect will emerge in our sector.  But I also expect that the news headlines will be pretty merciless.  Because we'll see some big-name companies hurting, and aggregate dollar amounts fall way off, journalists will over-react and turn into Chicken Littles real quick.  That's what they do...

• Meanwhile, while I hope it's clear from the above descriptions that I'm not sanguine about the prospects of such strong market growth in cleantech over the coming period, I do think that cleantech will likely be better-insulated than many other economic sectors.  I expect cleantech markets will continue to grow, if more slowly.  So all those "green-collar jobs growth" efforts that have been pursued out there might start paying dividends even sooner than had been expected...

What we're generally telling our portfolio company managers is that it is not time to panic.  It's a time to make sure and manage cashflow carefully, and to focus on providing good economics to customers.  And to plan around a wide range of scenarios, including the possibility that things will slow down in their market pretty significantly for a while.  But since at our firm we tend to favor lower cash-burn investments anyway, no need for radical shifts in strategy, or pulling back on growth efforts.  Fingers crossed...

This ain't my day job, people. The reason (or at least ONE reason) these posts come so infrequently and at odd hours is because I try to squeeze in some quick news-reading and typing whenever I get a spare moment from being a full-time venture capital investor. It can be fun when worlds collide -- I'm often on the list to receive press releases, for example, and have even had a conference or two where I was granted "media room" status when I was really there to scout for deals and network.  So I get to see the ongoing cleantech P.R. wars from both sides of it. Some funny interactions can ensue.  Like the time I was called up by an investor at another firm who wanted to chat, so I'm thinking about what deals I'm working on that he might be interested in co-investing on, and expecting an update on a deal he's working on, or a market question he wants input on.  Instead, he passed the phone to one of his partners (and the only GP there I hadn't known well already) who proceeded to lecture me about one of my blog posts where I'd passed along some bad info about their firm.  Hey, no worries.  So anyway...  how's that deal going that we discussed a couple of weeks ago? Or this email I got from a P.R. firm recently:

Subject:  Who's Afraid of a Green Bubble? Hi Rob, While the current enthusiasm for clean tech is sure to yield some amazing new technologies, it’s also equally sure to lead to big losses for investors who are in over their heads. As you know, evaluating clean technology isn’t as simple as loving its mission. Venture Capitalists [Name omitted] and [Name omitted] of [Venture Capital Firm X] believe we are in the midst of a green bubble. They reviewed 1700 clean deals in the past 12 months and only invested in 7. The opportunity is great, but so is the risk. The companies that will succeed are those that can truly compete with petroleum and the grid in terms of price and availability. This requires more than a great technology-it takes an understanding of how to scale a company and how to partner with Big energy (the incumbent companies that control the industry today). Please let me know if I can introduce you to [Name omitted] or [Name omitted] to discuss the green bubble.

• What entrepreneurs and investors need to know to be successful
• Why most companies won’t make it past the test phase and into the marketplace
• The keys to partnering with energy incumbents
• Next generation fuels: why ethanol is better for martinis than cars
• Which clean tech fields are over saturated and which show real opportunity
• Why government subsidies can inflate the bubble

The partners have strong views on which technologies will make it and which won't survive the bubble. ... Most [Venture Capital Firm X] partners have a background in science, whether its emergency medicine or engineering. Please let me know if I can introduce you [to Name Omitted] or if you’d be interested in an introductory phone call or face-to-face meeting...

One of these days I'm going to take up one of those flacks' offers, just to enjoy the awkwardness of having my investor colleagues have to show up and answer some journalist-type questions from the amateurish likes of yours truly...  Such as: "How the heck does anyone really review 1,700 investment opportunities in one year???  Wouldn't that mean 'reviewing' one new startup every hour or so every single workday?"  Ah, the P.R. game. The rapid rise in P.R. activity is what I'm pointing to as the first "Macrotrend" among several I hope to write about over the coming weeks. Because it might be interesting to think about what's driving it, and what it hopes to accomplish. Besides the general upsurge in cleantech activity overall, what's driving the rise in P.R. activity is the entry of VC firms with a long history of playing the publicity game for the benefit of themselves and their startups. Because P.R. can be useful at times.  Creating "buzz" around a company can help it get traction with early customers and business partners, and can also be helpful in raising that next round of financing. Some bigger firms are especially good at playing the "stealth company" game:  They tell the CEO at their portfolio company, "You're now a stealth company -- take all useful info off your website, and refuse to talk to reporters."  Then the VC firm's GPs go out and do speaking events around the country where they happen to mention ("oops!") that they have a stealth company in that sector, one that they're super-excited about.  If reporters had gotten a P.R. firm's email about the startup, there's a good chance they wouldn't care or at least would bury the story, given the volume of such emails every day.  But a "so-and-so backed stealth startup"??  Now THERE'S a scoop to go find!  And so when the reporters do track down the company in question (which isn't hard), they write it up as a feature story and with all sorts of glowing conjecture about what might make the startup so exciting. Such efforts to use P.R. on behalf of portfolio companies can go a bit overboard, in my humble opinion...  If a company was really intended to be stealth, the investor wouldn't be dropping breadcrumbs like that, right?  Here's another example:  I was speaking with one investor about one really big deal announcement they did, a massive round of financing, when it wasn't clear to me why they needed so much capital at that time.  After some good-natured badgering he finally admitted to me that the P.R. value of announcing such a large deal was seen as having some important strategic value for the company, lending some instant credibility to the effort.  In other words, they were putting in tens of millions of dollars before it was actually needed, partly for the marketing benefit.  To which I jokingly replied, "Huh.  So how many sock puppets do you get for all that money?"  I kid, I kid... As more and more firms jump into the cleantech market, it's generally good things for the sector -- attracting strong interest from entrepreneurs and managers, and attention from large corporations (customers and future acquirers), not to mention the depth of venture capital expertise these generalists can often bring to the table.  But as we've discussed here before, the new entrants also understandably tend to gravitate into a few narrow sub-sectors (at least at first), which is one reason why portions of the market (like thin-film solar and ethanol and electric cars and late-stage in general) have gotten so much of the venture capital.  Which of course means those sub-sectors get crowded with lots of well-financed startups trying to get noticed.  Which leads to P.R. wars.  Which leads to silliness like large financing rounds for marketing reasons.  And those generalist investors also need to try to communicate to LPs, entrepreneurs, etc. that they're not really new to the sector, they're smart on cleantech already.  Which leads to even more P.R. wars. All of which overwhelms the journalists covering the sector. I now receive about 10 such P.R. emails a day, up from, say, zero a couple of years ago (of course, many of the emails have to do with a product launch announcement or conference or something non-VC related, not deals).  Not being a journalist, it's kind of fun to see them, and I've even used a couple of them in a column or two.  But I imagine those intrepid reporters at GTM, VentureWire, etc. must get even more than I do, and so I have huge respect for the challenges they must face in having to deal with deadlines and digging for scoops and not being "late to report the news," what with that constant drumbeat of P.R. activity every day. What inevitably happens is that the news coverage of the cleantech sector gets dominated by the various P.R. wars, and not by what's really going on.  There are deals you don't hear about.  There are great companies you don't hear much about.  There are entire subsectors within the cleantech market that you don't hear much about.  There are super-smart investors either already established or getting into this sector who don't get written up and profiled in glossy magazines, but who are building strong companies and helping to build a robust cleantech ecosystem that will drive years of future sector growth. The growing hype wars could easily create the idea that there's a bubble going on in cleantech.  Perhaps they are indeed a symptom of that, although I would disagree with any such overly broad generalizations.  But readers should bear in mind that the P.R. wars, and thus the media coverage, only marginally reflect what's going on throughout this sector right now.