Viewing posts tagged "Dollars And Numbers"

Great returns from cleantech

Did you see the Q2 venture returns report from Cambridge Associates and the NVCA (note: pdf)?  If so, you were probably as intrigued by the chart on page 7 as I was.

On that page is a chart of "US Venture Capital Dollar-Weighted Internal Rate of Return on Vintage Year Companies" broken out by sector.  They don't break out cleantech as a category, but they do break out Energy.  And the numbers are pretty noteworthy.

Energy category IRRs vs. All Companies IRRs

2002  Energy = 43.0%, All = 8.75%

2003  Energy = 46.0%, All = 12.3%

2004  Energy = 10.4%, All = 12.8%

2005  Energy = 33.5%, All = 9.66%

2006  Energy = 23.7%, All = 4.46%

2007  Energy = 20.1%, All = 0.65%

2008  Energy = 9.10%, All = (0.04)%

So what is this really saying?

On the surface, it looks like there have been great IRRs in Energy as compared to other sectors like IT, Software, Health Care / Biotech, etc.  In almost every year post-Internet Bubble, VC investments are producing pretty healthy returns in the Energy category, in all but one year beating the performance of the overall VC pool.  If energytech VCs are getting these kinds of IRRs, that looks good compared with current criticism of venture capital that it's been producing sub-par returns versus the risk level inherent to the category. 

But wait a minute, there's a big catch.

If you read the fine print in the methodology, some (and most likely, the predominant portion) of these IRRs have been calculated based upon NAVs (net asset value), not actual cash returns.  So, for example, if a company took in a Series A in 2002, and since then they've had significant up-rounds but no exit, the value of the company is pretty much* set at whatever was the valuation of the last round.  In the aggregate, 2002 vintage companies who took in money that year and later are looking at pretty significant up valuations versus where they were when the money went in.  At least in the numbers CA is tracking.

What this really reflects, therefore, is just what we've talked about here many times over.

1.  The aggregate dollar totals in cleantech venture capital have been dominated by a relatively small number of really huge late-stage deals.

2.  While overall economic conditions are definitely having an impact, many of those well-capitalized companies hadn't had to take in lower-valuation follow on capital through Q2 2008.  So on paper, they're still being carried at those previous high valuations.

In fact, in another part of the report they show that the actual cash distributions across all VC categories are just about nil from 2004 vintage funds onward, probably moreso in cleantech (I'm guessing).

So don't read this chart and get all excited.  These numbers will likely be revised downward in future such reports (but we can hope!).

The most important takeaway is probably that cleantech valuations have held up better than others, at least through Q2.

...Note I'm not at all criticizing the methodology used in this report.  It's great data and hard to do anything more than what CA's done with it.  Just pointing out what we can conclude from it.

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(*it's really not nearly so simple, but let's not get too wrapped around the specifics here)

Depends on how you look at it, I guess

The initial takes on Q3 cleantech venture funding have come out over the past few days, and really, you can interpret them however you want.

The tallies are so far pretty consistent (haven't gotten most of the tallies, or even most of the details quite yet). They show that Q3 saw more dollars going into the sector than Q2, but that Q3 2009 was way down in comparison to Q3 2008.  Not really surprising, actually.  Things have been picking up a bit, and 3Q08 was a pretty high quarter.

Eric Wesoff's always useful tallies for GreenTech Media totaled up $1.9B in 112 deals globally.  Of that, solar, biofuels and other fuels made up nearly $1.1B and 46 deals, once again dominating the scene.  Big deals Eric tracked included Solyndra ($198M), Synthetic Genomic's funding commitment from Exxon ($300M over multiple years), Tesla ($82.5M), and Serious Materials ($60M).  As always, Eric and I have very different interpretations of the stage data.  He points to his tally of 35 Series A and seed deals and proclaims "a marked trend of a return to early stage deals".  I look at it as 77 late stage versus 35 early stage deals and still wonder how the top of the funnel is going to continue to be filled for late-stage investors.  But on the other hand, we both wonder if the VC model still works in solar... 

Over at the Cleantech Group, they tracked $1.59B in 134 companies worldwide, also with solar and fuels dominating the tallies.  While they celebrate the A123 and other IPOs, they also note that cleantech M&A was down a bit from the previous quarter.

New Energy Finance (note: link downloads pdf) pointed to a bit of a decline from Q2 to Q3 in terms of overall global investments in renewables.  But within that, they show that venture capital activity in the sector did increase. 

So what have we learned?  Don't believe the overly pessimistic ("things are way down versus a year ago!") and optimistic ("things are up on Q2!") headlines.  Instead, it's pretty much just a confirmation of what we have already been feeling and talking about here -- things look to be getting slightly better, but still far from the high-flying days of early 2008.  That's probably a good thing...

In a completely different note, fellow Bostonian cleantech investor Jon Karlen of Flybridge has launched a new blog, check it out!

Back in the saddle

Over the past week or so, we've gotten the initial Q2 cleantech venture tallies from GTM (85 deals, $1.2B), the Cleantech Group (94 deals, $1.2B), and NEF (note: link opens pdf) ($1.4B), and the picture is that investors are starting to get back into activity again.

Granted, in terms of dollar amounts the activity remains below the pace of a year ago, but the number of deals is comparable to that from 2008, with GTM's Eric Wesoff counting 85 deals around the world in Q2 2009, compared with 350 deals for all of 2008.  In GTM's full Greentech Innovations Report for the quarter, Wesoff notes that while investment activity is rebounding, the quarter didn't see any huge $100mm solar or biofuels deals, which is why the dollars haven't caught back up to where they were. 

The NEF data is a bit dissonant, in that it shows a slight decline from their Q1 2009 total VC dollar tally of $1.8B, but we've talked a lot here on this site about the compounded challenges of trying to get consistent data across different analysts' methodologies and dollars vs. deal counts.  So if nothing else, it's somewhat gratifying to see all 3 tallies somewhat in sync for at least this one quarter, even if their Q1 to Q2 trend lines are a bit off from each other.

Interestingly, both GTM and the Cleantech Group show signs of a bit of tempering of VC enthusiasm for solar, although as always the data is tough to compare without full details (GTM pegs the sectoral subtotal at >$300mm, while Cleantech Group puts it down at <$150mm).  Still, in both cases, the dollar totals slipped a bit for the sector, while sectors like smart grid, transportation and energy storage saw increases.

We'll check back in and do a full comparison after the other tallies come out in a few weeks, but the overall story for Q2 appears to be that cleantech VCs are still being cautious, but are slowly starting to get back into the game.

Speaking of which, I am excited to be taking on a fun new challenge of my own, starting this week.  Thanks to the many of you out there who've sent kind messages over the past couple of days since the news came out...  Looking forward to digging into deals and once again rolling up my sleeves to help clean energy companies grow, in this new context.  Cheers!

What capital efficiency?

Had the pleasure of moderating a very interesting panel at Boston University today on smart grid and energy efficiency, including representatives from the State of Massachusetts, NSTAR, GE, BU, and Millennial Net.  Lots of optimism about ongoing pilots and smart grid roll-outs.

And of course, here in this column we've talked quite a lot recently about how the cleantech VC community seems to be much more vocal about targeting capital-efficient energy efficiency and smart grid investments these days.

Except that I took a look at the details in the Q1 2009 Cleantech Venture Monitor (another great job by Cleantech Group's Brian Fan and colleagues), and there's no evidence yet of such a shift.

In their tally, solar remains the big dog, at almost 35% of all cleantech venture dollars in the quarter.  That's just barely down from the ~38% it captured in Q1 of last year, for example. 

Biofuels and transportation (not exactly the poster children for capital efficient investment areas) continue to be other big targets for VC dollars, at ~10% and ~20% respectively. 

And where is "smart grid"?  At under a 5% share.  In the Cleantech Group's methodology, energy efficiency investments tend to be spread across a number of different categories, but even the "green buildings" category garnered only ~10%, about the same as in Q1 2008.

Will we see VCs start to put their money where their mouths are in upcoming quarters?  We'll just have to wait and see.

Judgment calls

My last post seems to have set off some alarm bells for the various market analysts putting out cleantech venture capital tallies, since I heard from most of them today at some point…  For the record, my intent wasn’t to question anyone’s methodologies, much less competence!

But you can understand why these professionals take these things seriously, since their job is to be as accurate as possible.  Unfortunately, there was like an 6x delta between the high and low reported totals this past quarter, so it’s tough not to want to ask tough questions.

To the strong credit of guys like Eric Wesoff (GTM), Brian Fan (Cleantech Group) and Adam Wade (Dow Jones), they welcomed my questions today and gave me a lot of good info that helps illustrate just how many judgment calls there are in all these tallies.

Let me provide a few non-hypothetical examples from the first quarter.  Readers:  Would you include these deals in the Q1 tally if you were in charge?

1.  Optisolar raises a $30mm round of senior secured promissory notes, as reported on March 18th by PE Hub based upon regulatory filings.  These notes may or may not be intended to convert into equity in any subsequent financing event.

Would you count it in a Q1 cleantech venture tally?

2.  SunEdison announces on March 4th that they have raised $20mm in “project financing” from Union Bank (note: link opens pdf).

Would you count it in a Q1 cleantech venture tally?

3.  News comes out on March 6th that eSolar has raised $30mm from India’s Acme Group in exchange for 5% ownership of eSolar, as part of a deal that also included regional licensing of eSolar’s technology.

Would you count it in a Q1 cleantech venture tally?

4.  On Feb. 10th, PE Week Wire reports that SolFocus has raised an additional $19.28mm in Series C financing.  Interviews with the investors and/or company (yes, these analysts do indeed do a fair amount of legwork to bring you these tallies) indicate that the financing occured in the last part of 2008 as part of a larger round, but no one has reported it previously.

Would you count it in a Q1 cleantech venture tally?

There are no wrong or right answers to any of the above.  All are good tallies, they’re just different.  Just so you know:

• Optisolar was included in the GTM tally, but not the Cleantech Group or VentureSource tally.
• SunEdison was included in the VentureSource tally, but not the GTM or Cleantech Group tallies.
• eSolar was included in the VentureSource and GTM tallies, but not the Cleantech Group tally.
• SolFocus was included (@$47.5mm) in the GTM survey, as well as (@$66.8mm) in the Cleantech Group survey, but not in the VentureSource tally.

But I’d be hard-pressed to argue that any of the above judgments were demonstrably correct or incorrect.

And that’s just the solar category, dealing only with U.S.-based companies.  You can get a sense as to how the variances between the different surveys come up, especially once you include questions about whether a cleantech IT deal should be cleantech or IT, not to mention geographic scope issues.

Today, VentureSource also released their cleantech-specific tally (the one I cited yesterday didn’t draw cleantech investments across categories, so I had only mentioned their renewable energy numbers), and it helps draw the tallies yet closer.  VentureSource counted approximately $300mm in U.S. cleantech venture investments in Q1, which is still down from the $1B they counted in Q4.

Meanwhile, the Cleantech Group counted about $700mm (I’m eyeballing this from a chart) in North American investments.  That’s still a big difference between VentureSource and Cleantech Group totals (just to pick two for illustration purposes), but not such a wide divergence as we originally thought.  And then we go back to the potential methodological differences I mentioned in the last post.

I’ve mentioned several times before that, due to methodological differences, the most useful exercise is NOT to compare across surveys, but to compare time series within any given survey.  So:

• GTM’s totals dropped from $1.7B in Q4 to approx. $1B in Q1.  Deal count dropped from 99 to 59.
• Cleantech Group’s totals dropped from a little over $2.5B in Q4 to a smidge over $1B in Q1.  Deal count dropped from 99 to 82.
• VentureSource’s totals dropped from $1B in Q4 to $0.3B in Q1.  Deal count dropped from 44 to 25.
• Moneytree’s totals dropped from $974mm in Q4 to $154mm in Q1, but deals dropped from 67 to 33.

Forget all the differences across the different surveys, what’s clear is that there was a significant drop-off from Q4 to Q1, both in terms of deals and dollars.  Deals dropped probably by about a third to half.  Dollars dropped more, by 60% or more.

That’s not that different from the ~50% declines across ALL venture capital categories that VentureSource and Moneytree saw.  Especially once you account for the fact that the mega-deals completely disappeared, thus pulling down dollar totals more than deal totals.

In another post we’ll talk about why the pull-back happened and what it might mean.  For now, it’s back to my (supposed) vacation…

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Q1 cleantech venture numbers:  What happened??

So just a couple of weeks ago, I posted an analysis of the differences between the Cleantech Group’s and GTM’s Q1 venture capital tallies, concluding that cleantech remained a bright spot within the overall venture landscape.

And then over the weekend came releases of the Moneytree (pdf) and VentureSource tallies showing a massive drop-off from Q4.  Not a bright spot at all.  Moneytree showed an 84% drop in cleantech venture dollars from Q4 to Q1, and VentureSource saw a 73% decline in renewable energy financing from 1Q08 to 1Q09.  Versus the approximate $1B tallied by both Cleantech Group and GTM, Moneytree counted only $154mm in cleantech deals, and VentureSource counted $117mm going into renewable energy (which they describe as the “backbone of the industry-spanning ‘cleantech’ category”).

So what happened??  Is it time to hit the panic button?  Even in the context of overall declines across all venture categories, this would seem to be disheartening news.

Without having the dealflow details available, it’s tough to tell exactly what happened.  But we can tease out some clues.

First of all, both the Cleantech Group and GTM numbers were multinational.  Is it possible that most of the deals in Q1 were outside of the U.S.?  Well, there may be something to that at some level.  But given that in the Cleantech Group’s press release they cite three U.S.-based solar deals (SolFocus @ $67mm, Solar Power Partners @ $47mm, and Sierra Solar Power @ $40mm) that alone added up to more than the VentureSource renewable energy totals, something’s still very off.

What about deal counts?  Again, tough to come up with good comparable numbers across all the studies, but in North America the Cleantech Group counted 45 deals.  But Moneytree counted only 33 cleantech deals in the U.S., and VentureSource counted a meager 9 renewable energy deals.  A pretty big divergence.  I can only come up with 4 possible answers for this:

a) Missed deals in some surveys

b) Methodological differences in industry categories, where some surveys have broader definitions of “cleantech” than others—and where the renewable energy deals in particular fell off, as opposed to energy efficiency, water, or materials

c) Methodological differences in inclusion of stage and type of financing.  This may very well be a major factor, if some surveys aren’t including convertible notes in their tallies and others are.  Because some of the biggest deals that were announced often conflated debt and equity financings, it would certainly inflate some of the dollar amounts if the debt was also included.  And as these are often bridge financings intended to convert into a future equity round, it’s unclear that they shouldn’t be included anyway.

d) Methodological differences in terms of what quarter a deal is included in.  We discussed that in the post a couple of weeks ago.

There may be other possible explanations as well, readers are encouraged to submit their own ideas.

While the Moneytree data showed a dollar drop of 84% from Q4 to Q1, the number of deals fell only about 50% in their survey.  That, for me, really summarizes what all the various surveys showed in common:  A drop in the number of deals, but an especially huge drop-off in the number of mega-deals, so that the dollar totals were way way down.

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