First, some deals:

• Li ion battery startup ActaCell has raised a $5.8mm Series A, led by DFJ Mercury and including Google.org, Applied Ventures, and Good Energies. Expect the energy storage sector to get even more attention going forward as some anticipated exits come to fruition, and as the political campaigning season and other developments focus attention on the transportation applications for batteries.

• Carbonflow, a startup from fellow cleantech blogger Neal Dikeman, has raised a $2.9mm Series A led by Clean Pacific Ventures, and including OVP Venture Partners and Meridian Energy. More below...

• Performance Plants, a developer of agrotech innovations with applications in biofuels and food crops, has raised a C$13mm round of financing, led by Ceres Global Ag Corp., and including Eastwood Capital Group and a syndicate of Boston-area private investors such as Saturn Asset Management, plus Montreal-based Endurseaux Inc.

• PE Week Wire reported today that Athenix, another developer of ag and biofuel techs, has raised $10mm in "Series S" funding from return backers Hunt Ventures, Intersouth Partners and Polaris Venture Partners.

• PEHub's Alex Haislip reported today that Optisolar's April $132mm round of financing has been expanded by another $77.8mm. Alex also jumps on board with me in arguing that these kinds of investments are hard to categorize as "venture capital" per se...

• Sweden's QuNano AB has spun out a new venture, Sol Voltaics, to develop multijunction PV cells. The list of seed investors is long, so here's a cut-and-paste: "The seed investors in Sol Voltaics include funds advised by venture capital firms Provider Venture Partners of Stockholm, Teknoinvest and Nano Future Invest of Oslo, joined by LU Innovation together with LUAB, the investment arm of Lund University (Sweden), as major owners, along with the founders and employees of QuNano. A new investor will be Scatec Adventure AS..."

Other items:

• We've added a few new blogs to the blogroll: Carbonflow's Karla Bell is writing on carbon trading subjects at GHGblog.com... Shai Agassi's Long Tailpipe is worth checking out (ummm, not sure I phrased that as well as I could have)... and Andy Bochman and Chris Davis' PowrTalk always has some good perspectives.

• Cleantech IPOs are expected to lead the way when the IPO window re-opens... And the linked CNet article also notes further down John Doerr's use of the contrast between the $25mm Google required to get to exit vs. Bloom Energy's $250mm (and 7 years) and counting. Which begs an obvious question -- doesn't using that comparison as Exhibit A in an argument for going later and bigger in this sector require an assumption that both companies were equally good investments, or at least that Bloom Energy is a very typical cleantech investment? There are plenty of other good arguments to be made in support of their making such a shift in investment strategy, of course, but I was struck by his comment at the time, and I'm still struggling with it even now.

• Meanwhile, M&A exits overall are apparently a buyer's market right now. Haven't seen any good info on how that might be affecting cleantech in particular.

• I wrote up a bit about the power of information as a policy tool in the latest issue of Mass High Tech, for those interested in such topics...

Also, the California Clean Tech Open has announced their finalists... And finally, take the cash!!

The myths being thrown around about cleantech venture capital perhaps reached a new height of silliness this weekend, with a NYT article which suggested that cleantech venture capital is responsible for the lack of VC-backed IPOs in the last quarter (also mentioned in this Earth2Tech post). They reported that some VCs said that"the pipeline for public offerings has dried up in part because of the considerable shift in the industry’s interest in the last three years into 'green' technologies, which was taking time to bear fruit." That's just plain silly. It does, however, provide a nice opportunity to discuss a few of the myths (and half-truths) surrounding cleantech venture capital these days, because that silly statement about IPOs rests upon a few key assumptions worth looking into: Necessary assumption #1: Cleantech venture capital activity has reached such a point that it's "driving the bus" in the sector, so if there are no cleantech IPOs, then there are no VC-backed IPOs. Look, I know all the media wants to talk about is the excitement around cleantech/ greentech/ energytech these days, and not the "boring" other technology sectors [insert ironic tone here]. But it's not like the entire VC industry woke up three years ago and decided to abandon all other investments. Even by the most generous measures (and they're indeed generous, if you look at the details), cleantech remains less than a fifth of all VC dollars invested in the U.S. And most tallies put the proportion going into cleantech at much lower levels (less than 10%, according to Ernst & Young). In fact, as we noted before, health care still attracts significantly more venture dollars than cleantech. Not to mention software and IT, internet, etc. Especially when one considers the size of the market opportunity (and with some exceptions in specific sub-sectors, perhaps), cleantech remains a relatively underinvested sector. There are a lot of attractive places venture capital is going these days, and cleantech is only a small part of that. So how is cleantech possibly driving the overall venture capital asset class? Necessary assumption #2: Clean technologies take longer to mature. This falls into the category of "half-truth". Yes, when compared to a software or internet startup, a biofuels or solar startup will take longer to mature. It just makes sense. The process iterations take longer and require more capital, and the end product can't just be thrown out there into the market before being fully vetted and in some cases certified. Not problems that a Web 2.0 startup has to deal with, for example. But NO, when compared with many other venture-targeted sectors, and when the entirety of cleantech subsectors is taken into account, it's hard to argue that the entire universe of clean technologies takes longer to mature than the rest of the VC-backed markets. Since we've already mentioned health care, let's consider that as a contra-example. It's a regulatory-driven market that requires significant time to develop, iterate, and get approval for new technologies. As previously mentioned, it's much bigger as an investment category than cleantech. I'm not knocking that investment category, just asking: Why single out cleantech as being particularly long to mature? And let's consider the many efforts within cleantech that aren't solar and biofuels -- does energy efficiency software take longer to mature than other software plays? Do solar financing startups take longer to mature than other financial services startups? I'm willing to grant that there are many cleantech segments where the technologies will take a fair amount of time to mature, and that includes a few of the hottest segments in the sector -- but there are plenty of other segments where that's simply not true. This myth, that cleantech invariably takes longer to mature than other sectors, has been given some credence lately by several high-profile venture capitalists who make that argument publicly. But a) they're usually focused on the longer-gestating cleantechs like solar, biofuels and solid oxide fuel cells, and thus conflating the rest of the market into their narrow view of "cleantech"; and b) they're often referring to specific examples in their early experiences in the sector where they made a bet with overly optimistic expectations around time-to-market, and got burned. All of which is fair, and smarter investors may disagree with my point of view... but when you see a journalist (perhaps citing a VC) implying there's a consensus that cleantech always takes longer to mature than other tech types, know that they're over-generalizing greatly. Necessary assumption #3: A sector where the techs take longer to mature means a sector where the investments take longer to exit. Maybe if all VCs always invested at the same stage in a startup's development, this might hold true. But it's been clear for some time now that VCs have reacted to the longer gestation periods for solar and biofuels (where most of the capital has been deployed) by shifting later stage. According to the Cleantech Group, while the number of seed and "first round" cleantech venture capital investments actually fell from about 200 total in 2003 down to about 175 total in 2007, "follow on" rounds shot up steadily over that period from 150 in 2003 to 300 in 2007. Later stage venture capital has been driving the growth in venture capital spending in cleantech. Basically, if a technology takes 3, 5, 7 or 55 years to mature... but the investors don't get in until it's just a couple of years from commercialization... how does that affect the amount of time between writing the check and the exit? The longer gestation period may be a reason why some investors have been moving later-stage, but it shouldn't be a reason for any gap in exits, in other words. Now, what may have been happening is that even "follow on" rounds into cleantech companies have ended up being further from a point of exit than had been expected by the investors when they did the deal. But what that says is that the gestation period of clean technologies doesn't matter... the VCs' ability to ESTIMATE the gestation period of clean technologies is what matters. And as they've gotten smarter about making those estimations, many have gone later and later in their investments. To the point where now we see the emergence of very large cleantech funds being raised with the explicit expectation of shifting a bit more (as a proportion of dollars spent, at least) into "growth stage" investments. At my firm, we are early stage specialists in cleantech. But we're not seed stage investors. Because we know that in many sectors it can take longer than expected for the technologies to be developed, commercialized, and adopted by the market. It's just a strategic choice we've made. Other firms are making other strategic choices, and some have chosen to focus more on later-stage investments, especially during this period when exits have been forestalled. Still others (esp. including angels) continue to focus on seed stage investments, filling that pipeline referred to in the article. There's no single uniform timeframe venture investors are targeting, in other words, so the journalistic tendency to paint the entire category as some monolithic herd is a bit misguided. In any case, there's no inherent reason why, even though solar and biofuels have longer tech maturation periods, that should have any impact on exit timing for venture capital investments. It's not like VCs have been doing only early-stage cleantech investments over the past few years. Necessary assumption #4: Any of the above assumptions, whether right or wrong, would have any impact at all relative to the overall macroeconomic effects being felt right now. What makes the NYT article particularly silly is that it flies clearly in the face of available evidence that there are indeed numerous cleantech startups that are primed to IPO as soon as the overall window opens. In fact, as we've talked about before, 2008 was supposed to be the year of the first big wave of VC-backed cleantech IPOs, which are now only being held back by broader market conditions. Investment bankers are saying that cleantech will be the sector that leads the way when the IPO window re-opens. Retail investor interest in the sector doesn't appear to have waned much, as record oil prices continue to make the most visible argument (albeit far from the only one) that the underlying fundamentals are greatly in favor of strong growth in cleantech markets. So far from being blamed for the IPO "gap" this year, cleantech is being viewed as a potentially critical sector that will drive the next wave in exits. The simple fact is that the macroeconomic conditions, and the mood on Wall Street in general, is not conducive to IPOs of any color. So the argument that cleantech is a significant reason for the lack of VC-backed IPOs this quarter is just plain silly. ...although perhaps not as silly as bottled water economics. Finally, on a lighter note, this cartoon was kind of funny.

We'll talk more about 2007 dealflow numbers and recent deals tomorrow, but today the big news is macroeconomic. International markets are melting down, the Fed is stepping in with a big emergency rate cut, and everyone is talking about the R-word. So what would a recession mean to cleantech venture investors and startups? There are four potential scenarios being discussed by investors: 1. There are those who argue that, in a recession driven in part by high energy costs, alternative energy generation and energy/ water/ materials efficiency plays can look even more attractive. This argument suggests that cleantech markets can be somewhat counter-cyclical, and that government stimulus plans could provide a short-term boost to startups. Furthermore, the argument goes, the stark challenges facing incumbent energy and resource markets could prompt venture and project finance investors to turn even more to cleantech as they run away from other tech sectors more affected by a downturn. 2. A second scenario accepts many of the above factors, but weighs that against lessened spending by corporate customers, and generally more difficult financial markets, and balances it out to suggest a "business as usual" outcome for cleantech startups and their investors. 3. A third scenario is more negative, but tempered by the countercyclical factors from the first scenario. Those arguing for a slow-down in 2008 point out that exit windows for investors and startups will be much narrowed, if not closed. And that corporate customers, who continue to drive most of the markets for cleantech, would tighten their purse-strings. Cleantech might be a bit insulated from the magnitude of macroeconomic bad news because of some countercyclical features, they argue, but an ebbing tide lowers all ships regardless. 4. And the fourth scenario being (carefully) discussed is the gloom and doom scenario. Those fearful of this kind of outcome point to the market downturn of 2001+, when publicly-traded energy tech stocks lost most of their value, energy tech venture capital investments fell by more than half from their 2000 peaks, and much-anticipated market transformations (such as "a DG world" and visions of fuel cell cars all over the highways) were delayed indefinitely. Each of these scenarios could hold true, but we're thinking that the third seems most likely. Tough to maintain optimism in the face of everything going on with the economy. And while there are some mitigating factors that may help insulate cleantech markets from the worst of it, it seems likely that investors and customers will be forced to back off a bit if the economy really does stumble. And yet this time around, unlike in 2000, much of the venture activity in cleantech has focused on technologies that are more ready for prime time and on real market needs, which makes it tougher to believe the worst scenarios. So what would a 2008 like that third scenario look like? 1. Some sectors will be hit worse than others. Any startup dependent upon sales to or through new home builders, for example, could be pretty hard hit. Others, such as biofuels perhaps, where regulatory mandates now in place will continue to provide an impetus for further adoption, may be less hard hit. Startup management teams will be scrambling to control things as best as they can; investors will be paying even closer attention to the effects of macroeconomic conditions on particular end markets. It'll be company by company, but some sectoral trends will be visible as well. 2. Remember when we talked about how 2008 was going to be a critical year for cleantech investors in terms of the first real wave of exits? Uh oh. Exit windows just got a lot harder to squeeze through. Where this will really hurt will be the high profile, high-cash-burn startups that have been going all out to try to get to a quick IPO. Any company's expectation that an IPO in 2008 could provide necessary additional funding and an exit for investors just took a bit hit. For companies now in this precarious position, those making real operational progress will probably still be able to raise necessary funds to carry them through, but perhaps not at the hoped-for valuations. And others will be shaken out. Capital efficient startups whose management teams are focused on achieving cashflow breakeven, on the other hand, will be somewhat insulated by being able to wait out any temporarily unfriendly market conditions. 3. This time last year, I predicted that while cleantech venture deal numbers would go up in 2007, fewer mega-deals would mean that the overall dollar totals would remain pretty flat. "Never wrong, but often early," huh? That prediction may have been meant for 2008 instead of 2007. In fact, it wouldn't be surprising to see dealflow in terms of both dollars and deals take a hit. But I'm also not expecting a mass exodus of generalist VCs from the sector, and the specialists aren't going away, and the long-term market fundamentals remain as attractive as ever. So I would expect a pause/ slowdown, but not a screeching halt in cleantech venture activity. Nevertheless, in all likelihood, in some sectors where high-growth expectations have driven particularly high valuations and big round sizes lately, we might see some reconciliation there as investors become less willing to price upside returns potential out of their deals... All of this is much of a guess as ever, but there you go, for what it's worth... It'll be an interesting next few months, that's for sure. Fingers crossed...

Outsiders are winning presidential primaries, cleantech IPOs are getting pulled, and the big cleantech venture deals keep rollin' in.  It's going to be a fun year... So let's get things kicked off with a few disconnected items:

•  We talked last week about how 2008 will be a make or break year for the first wave of post-2005 cleantech venture investments, and already the first big relevant news item has come out -- that Imperium has pulled their planned IPO.  We'll let the journalists do their job on these kinds of stories, digging into the details.  But expect a lot more stories like this in 2008:  "Big changes afoot at Company X -- does this spell trouble for the company??"  It's just important to recognize that whenever these stories come out, changes aren't necessarily a true indicator of problems at the company in question.  It's natural for startups to go through senior management changes as they near an exit event or simply progress in their development.  It's even normal for workforces to expand and contract as different technology, product and market development stages are hit.  That's not to say whether things are going well or poorly at Imperium or any of the other companies that have had similar types of stories lately, we'll let the companies share that and let the journalists dig into that.  But readers of such stories should always remind themselves that no reporter's job is to write a "hey, a change happened, but everything's fine" story -- they're paid to discuss controversy and to be professional skeptics.  Since there will be a lot of these kinds of stories in 2008, it's just important to keep that in mind.  And with all that said, sometimes it really will be a company in trouble.  Stay tuned...

• Revisiting past predictions, here's what I wrote back in 2007:

A small prediction: The total amount of cleantech venture dollars invested will likely go down in 2007. Why? Because the significant growth in “venture dollars� invested in energy generation technologies from 2005-2006 was in many ways driven by non-traditional investments, such as fundings of solar companies intended to help build out their production lines. While some VCs may have participated in these financings, they do somewhat skew the total dollar figures, since the rounds are necessarily much larger than your traditional venture financing — we saw back in Q3 that a mere 5 deals out of 47 made up 60% of the “venture dollars� tracked in cleantech in that quarter. Such mega-financings have mostly gone into solar and biofuels. And it’s only an educated guess, but while there will be more such large fundings in solar and biofuels in 2007, it will probably be a smaller number. Note that this only refers to total dollar amounts. The number of deals done in cleantech may continue to go up, as LP interest is still strong and more and more investors are getting into the space in one way or another. Oops.  Way off on that one.  The basic assumption, that deal sizes would come down and that mega-deals would stop dominating the dollars going into the sector, was dead wrong.  But I'm sure my predictions this year will all be much more accurate...

• The Renewable Energy Business Network continues to expand, with the launching of REBN-Houston, thanks to the local efforts of Cheng Chang.  They're going to be kicking off their networking efforts with an inaugural event on January 30th, readers in the area should check it out.  And a reminder to Boston-area readers, that the next REBN-East event will be January 22nd at the Muddy at MIT, co-sponsored by the New England Clean Energy Council.

• Lithium ion battery developer Boston Power has raised a $45mm Series C, led by Oak Investment Partners, and including participation by Venrock, Granite Global Ventures, and Gabriel Venture Partners.  Xconomy had a good writeup, with a pretty insightful observation that in energy storage we're still waiting for that game-changing technology...

Other news and notes:  New Energy Finance reported that, across all geographies and investment categories, cleantech pulled in $117B in investments in 2007...  Here's a nice write-up on the recent upsurge in cleantech venture investing in the Seattle area...  2008 to be a year of a big push for more green policy shifts...  Tyler's predictions for 2008...  A highly entertaining post by Joel...  And last but certainly not least, here's a nice column by Neal on how cleantech bloggers are changing the world.

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:

• See GTM's Funding Roundup for news about deals including Validus, Tesla, and Novomer.

• 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!