I've spent the week in Israel -- my first time ever visiting the country -- as the guest of Israel Cleantech Ventures (I'm a bit biased toward these guys, I admit), visiting a bunch of cleantech startups and getting a first-hand view of the market.  And it's been fascinating.

Israel is among the most innovative countries, especially on a per capita basis.  Israel was recently ranked 4th in terms of scientific activity, and ICV claims to be tracking 800 cleantech venture investment opportunities here.  And all this activity is taking place in a country with only 7 million people -- just a bit more than the total population of Arizona.  As was recently written about elsewhere at GreenTech Media, cleantech innovation is particularly emphasized here as energy and water issues are very top of mind among Israelis. 

In terms of first impressions, I have been very impressed by the entrepreneurs I met this week.  Very strong technical teams, driven entrepreneurs, and a lot of pragmatism (which we all agree can be critical in the cleantech market) and emphasis on capital efficiency.  I met entrepreneurs working across a number of different sectors, from solar to wind to water to industrial processes.  I began to joke that no Israeli pitch deck needs to be more than one page -- each conversation basically was the CEO flipping to the first page, then verbally downloading the entire story of the startup for the next 45 minutes, and then flipping rapidly through the rest of the presentation over the last 15 minutes just to recap what was already said! 

But joking aside, it's also clear that there are a number of significant challenges to investing in Israel.  First of all, it is a tough to penetrate market for foreign investors.  The innovation and investment community really is that -- a community.  So many people either are friends or related or served in the same military unit, that as one person told me, "it really is an 'old boys network' here."  Coming in as an outsider and trying to jump into a couple of deals would be very tough.

Secondly, the innovation side of the equation may be strong, but with such a small country the market isn't sufficient to support venture-type startups by itself.  By necessity, VC-backed Israeli startups will almost always need to find significant export markets in order to grow to significant size.  The eventual acquirer of the startup is also likely to be overseas.  So Israeli entrepreneurs and investors have to be very outward-facing in order to succeed.

So my overall lesson is that Israel cleantech is an area that looks rich in investment opportunities.  But that it can't be effectively done alone either just by outsiders or just by Israelis.  Many other investors have clearly reached the same conclusion -- numerous US-based generalist VC firms have Israel-based offices to have people on the ground here, and ICV as a pretty unique sectoral specialist firm here has clearly made a practice of syndicating with external funds when appropriate, so that you see a lot of efforts by investors to do exactly what I'm suggesting:  Invest with on the ground presence but also with access to overseas markets. 

My many thanks to the team at Israel Cleantech Ventures for being such incredibly gracious hosts (a special thanks to Melanie Braunold!), it was a very productive week and a great introduction to the country's cleantech sector.

It seemed a couple of weeks ago like there might be a bit of a pause in cleantech VC deals, probably due to the economic crisis. Well, if there was a pause, perhaps it was in the issuance of press releases announcing deals.  Because over the past week or so the deal announcement volume has been off the charts.  Makes sense that companies wouldn't necessarily want to issue press releases when the financial journalists were otherwise occupied, but there's no evidence (yet) that the economic situation has negatively affected cleantech dealflow... ...With one important exception, and that's the evidence that several of the announced deals appear to be bridge loans (ie: convertible notes) from existing investors.  This will often [but note: far from always] mean that the company has either run out of cash sooner than expected, or is having a harder time raising funds than had been expected, so the existing investors (and sometimes some new investors) have passed the hat to quickly put more cash into the company, structured as a loan that will convert into equity when the next full round of equity financing is raised. So there's some early anecdotal evidence that things are a bit slower out there.  But meanwhile, here's a really long list of announced (or scooped) deals from the past week-plus:

• Ice Energy has raised a first $33mm tranche of a Series B financing, led by Energy Capital Partners.  Additional project financing could add up to $150mm.  Existing investor Second Avenue Partners also participated in the round.

• VentureWire reported that Philadelphia Renewable Energy, an algal biofuels developer, has raised an undisclosed amount of financing led by EnerTech.

• Tesla took in a $40mm convertible debt package, as GTM had mentioned was likely to happen.  In a VWire article, Elon Musk confirmed that the company's cash had gotten down to $9mm, but also said that the new financing (provided by most of the existing investor base) is designed to get the company to profitability.

• PE Week Wire reported that Xtalic, a nanomaterials company with corrosion-resistant alloys, has raised an approximately $10mm Series B, from Matrix Partners and North Bridge.  The company had previously raised $5.1mm.

• CellFor announced a $10mm convertible note financing, from existing investors and some new investors.

• CaliSolar has raised a $51.9mm Series B financing, plus another $50mm in convertible notes.  Hudson Clean Energy Partners joined existing investors ATV and Globespan in the round.  For what it's worth, Hudson is noted for preferring controlling positions (ie: >50% share ownership) in their companies, which is an interestingly different approach in the sector.

• PE Week Wire reported that Miles Electric Vehicles has raised $13mm of a targeted $40mm Series B from the Angeleno Group, which had previously led a $15mm Series A round.

• PE Week Wire also reported that Recapping, Inc. has raised a $500k Series A from Khosla Ventures.  It appears to be headed by Khosla Ventures partner Alex Kinnier, who's tasked with cleantech on their team.  Not much else has been yet revealed.

• NxtGen Emissions Control has raised a $15.4mm Series B led by Altira.  Other new investors included ITOCHU and "the corporate venture capital arm of a major Japanese automobile company," as well as existing investors including Yaletown Venture Partners, GrowthWorks Capital, BC Advantage Funds and Polygon Financial Investments.

• Avantium announced an EUR 18mm financing round, led by Aescap Venture and including Capricorn Cleantech Fund, ING Corporate Investments and Navitas Capital.  Some of the proceeds were used to buy out existing investors.

• Kleiner, Sherpalo Ventures and Applied Materials have invested $8mm in Indian solar company Kotak Urja Pvt Ltd.

• Acumen Fund has invested $1.26mm into India-based SBA Hydro & Renewable Energy.

• New Delhi-based D.Light Design has raised a $5.5mm Series A.  The company offers solar powered LED lights.  The round was led by Nexus India Capital, along with Draper Fisher Jurvetson, Garage Technology Ventures, Mahindra & Mahindra, Acumen Fund (at $1mm of the round) and Gray Matters Capital.

• CalCEF Angel Fund released some details on rounds they participated in, for HID Labs, Allopartis Biotechnologies, and an unnamed 3rd company.

• Advanced materials company EnerG2 has raised an $8.5mm Series A co-led by OVP and Firelake Capital.

• Noble Venture Finance has committed $7mm to Replisaurus, a developer of clean metallization technologies for chip packaging.

• Kashless, a barter website ("reduce, reuse, recycle", right?) has raised a $5mm Series A led by RRE Ventures.  The company was founded by Imperium Renewables founder Martin Tobias.

• First Solar put in $25mm of a $30mm Series D round of financing for SolarCity.  Existing investors DFJ and Double Bottom Line Investors filled out the rest of the round.

• Intel Capital invested in two Chinese cleantech companies:  $20mm into Trony Solar Holdings, and an undisclosed amount of capital into energy storage company NP Holdings.

• Cleantech investors in the news:  Jurgen Wahl has joined Gamma Capital Partners as a venture partner...  Victor Westerland has joined RockPort from InterWest, as a general partner...  Yaletown Venture Partners held a $65mm first close on their $100mm target fund.

Other news and notes:  A good article on the current status of Israel cleantech...  An interesting article on project finance for clean powergen...  A map of the San Diego cleantech cluster...  An article on investing in water...  And finally, an update from the 8th Annual World Toilet Summit and Expo.

• Pleased to note Israel Cleantech Ventures' announcement that they have reached a final close on their first fund at $75mm, above the original target of $60mm.  Robeco Private Equity and Piper Jaffray joined other institutional and family fund LPs in backing the group.  Good guys over at ICV, so it's great to see.

• Firefly Energy, which has advanced designs for lead-acid batteries, has raised a $16mm Series C led by Khosla Ventures and Infield Capital, with participation by existing investors Stark Capital, Caterpillar, and others.  The company had last raised a $10mm Series B back in 2006.

• Range Fuels' latest round keeps expanding -- apparently it's now up to $158mm.

In other news:  A good column in the Economist on the management challenge facing cleantech, highlighting (albeit not by name) the New England Clean Energy Council's new Fellowship Program...  The X-Prize is expanding into other cleantech areas...  Finally, Tesla Motors has a new competitor!

• GTM this past week told us about several cleantech VC deals including:
  • AqWise (wastewater treatment)... [2/4 correction:  Heard from Gene Dolgin at Israel Cleantech Ventures that the original source I'd used here was incorrect in some of their numbers, and instead that the accurate story was that "Israel Cleantech purchased 11% of the company in a secondary transaction in a deal that valued the company at $10M"]
  • Quantum Fuel Systems Technologies Worldwide took an approximate 25% stake in Asola (solar PV) for an undisclosed sum.
  • Green Plug (advanced power strips) took in an undisclosed amount of first-round funding from Peninsula Equity Partners.
  • Israeli solar thermal power developer Solel raised a significant amount of financing from Ecofin, which spent $105mm total in the new investment and in purchases of existing equity (Clean Technology Investor reported it was about half and half). Another round of financing is also planned, at which time Ecofin will hold a "very significant minority stake in the company."

• In another Israel-based cleantech deal, regenerative (flow battery) fuel cell developer EnStorage took in a $2mm round of financing from Greylock, Canaan Partners and Siemens Venture Capital.

• Solar micro-inverter developer Enphase Energy took in a $6.5mm Series B (note: VWire reported that this amount actually reflects a combination of Series B and an earlier Series A round) led by Third Point Ventures. VWire also reported that the Series B took place back in 2006, and is only being made public now as the company emerges from stealth mode...

• Driving-feedback company GreenRoad took in a $14.5mm Series B from Benchmark Capital, Virgin Green Fund, and Balderton Capital.

• Advanced lighting tech developer Luxim Corporation took in a $21mm round of financing from Sequoia Capital, Crosslink Capital, and DAG Ventures.

• PE Week Wire reported on Thursday that solid state lighting developer SJS Technology Inc. has taken in $2.5mm of a $5mm Series A led by Khosla Ventures.

• VentureWire reported that a 20 year old aerosol and particle technology company MSP Corp., with applications in pollution control and thin films, raised a $6mm Series A from Hunt Growth Capital.

Cleantech investors in the news:

• Journalists covering the sector are confused as never before, with recent articles suggesting the sector is varyingly too hot, or potentially hitting the brakes, or on the verge of becoming the biggest VC sector. Oh well.

• Elon will have to wait an extra couple of days for his Tesla... I'm guessing I'll have to wait even longer for mine, but my offer to the company still stands: If they let me have one for, oh, a 6 month test drive, I promise a very positive product review...

• Stanford Venture Capital Holdings has committed $10mm to Israel-based water tech AquAgro Fund.

Other news and notes: The Weather Channel is disappointed in Bush's latest climate change policy announcements... Meanwhile, here's a disquieting article describing the links between climate change and the availability of water in the U.S. southwest... The NYT on the emergence of the clean energy industry in California... If you're going to be at the GTM/ Prometheus Institute solar day in NYC later this month, make sure to say hello... With 2/5 right around the corner, here's your greentech voters' guide... Finally, and sadly, we send our condolences to the family and friends of Tyler Palmer, who died Monday in a tragic accident.

We deferred mentioning the deals and other news from last week to focus on discussions about the looming recession and the numbers from last year, but a lot happened during the week. One of the reasons for moving this column over to GreenTech Media was to take advantage of their reporting about deals, etc., so as always please bookmark the GTM home page and check there regularly for more timely updates! Deals from the past week:

• Building-integrated wind turbine developer Marquiss Wind Power raised a $1.3mm Series A, led by Velocity Venture Capital, with participation by Strategis Early Ventures.

• Khosla Ventures increased their stake in Transonic Combustion, at a "substantially higher valuation" than their second round of funding last year. Khosla Ventures is now the biggest preferred shareholder.

• Clean Technology Investor mentioned on Friday that coal giant Peabody Energy is putting an undisclosed amount of strategic investment into GreatPoint Energy.

• VentureWire's Jonathan Shieber reported on Thursday that stealth-mode diesel engine developer Achates Power has taken in an undisclosed amount of financing from a syndicate including Sequoia Capital, RockPort Capital, Interwest Partners, and Madrone Capital Partners. The VWire story's been written up a few more places now -- see the column at CNet's Green Tech Blog, for example.

• Renewable energy monitoring and reporting software vendor Fat Spaniel raised an $18mm Series B, led by Ignition Partners, and including participation by Pacific Corporate Group and Applied Ventures, as well as existing investors Element Partners and Chrysalix Energy.

• Solar thermal power developer eSolar took in a $10mm investment from Google.

• VWire also reported that wastewater treatment tech developer Microbial Solutions Ltd. raised a GBP1.2mm round of financing led by Oxford Capital Partners, with participation by H2O Venture Partners and existing investor The Rainbow Seed Fund.

• CTI reported that W.R. Grace is planning on investing $3mm and "up to $5mm" total in concrete developer CeraTech.

• Aquaculture (Kona Kampachi hatchery) company Kona BlueWater Farms has taken in a $2.6mm Series D, according to VWire. Investors in the company include Cornerstone Holdings; Garrett Gruener, co-founder and director of Alta Partners; and other undisclosed investors. The company now plans to raise a large Series E to expand into Mexico.

Cleantech investors in the news:

• A nice hagiography of Aileen Lee and Samir Kaul in Forbes -- Samir's "managing 35 greentech startups", according to the story.

• Very pleased to welcome back Todd Kimmel to the dark side! Todd's back at ATV after his successful effort to launch Coskata.

• Angel investor Jonathan Bonanno is launching a new green energy project development group.

• Intel Capital is joining the wave of corporate venture groups in getting more into cleantech.

It's becoming clear that Project Better Place is going to be receiving a lot of PR-driven attention over the coming months in part just because it's a bold idea, and in part by design. The latest announcement with Nissan and Renault in Israel was big news this past week, although it was also notable to see in the CTI coverage that the car companies are going to continue their own ground-up EV development efforts anyway. Readers are invited to post or email their own thoughts and questions about this fascinating endeavor. I'll kick us off: "In a geographically small country where 90% of drivers travel less than 70 kilometers per day, why do they need to stop at re-charging centers instead of just plugging in their cars at home or at work?" Maybe the answer is that it's all on-street parking in Israel? Other news and notes: Florida is looking to bring in more cleantech venture dollars... Color me skeptical, but Neal thinks Climos may be for real... Interesting overview of CIGS markets and movers... The energy intelligence market consolidation wave is coming... Tesla's planning on their first shipment being 3/17... Finally, it's only tangentially related to cleantech investing, but what a great quote.

We've talked a fair bit about all the buzz about a possible bubble in cleantech venture capital. So it's interesting to note this NVCA survey (link to PPT of results also found here), in which 80% of VCs surveyed expect that cleantech will attract higher levels of funding in 2008. In the same survey, when asked "Which single industry will be overvalued in 2008?", 61% of those surveyed picked cleantech (vs. 18% choosing Internet, 12% choosing media, and 9% choosing another sector). Leave aside questions about the survey methodology (why would only one sector be over-valued?) and the naturally contrarian reactions to the cleantech-focused hype cycle (when compared with the level of mass media attention and hyperbole regarding other investment sectors) that we've talked about before. Even accounting for all that, the clear signal from the general VC community is that they expect a cleantech venture bubble in 2008. It's a sobering assessment. The other survey results are pretty interesting as well (VCs predict a bad U.S. economy in 2008, oil above $92 per barrel a year from now, and Hillary to be elected president). Notably, VCs are predicting consolidation in the industry, with fewer independent funds and a larger average fund size. This is indicative of an overall trend in the industry along these lines. But with fewer, bigger funds, that necessitates at least one of three things: 1) Fewer, but bigger deals; 2) more deals per GP, and thus less involvement/support by VCs with their portfolio companies; or 3) the number of independent funds goes down, but the number of GPs per fund goes up. So far, the trend seems to be mostly toward #1, with some lesser evidence of the other two shifts as well. It may seem to be a bit of a stretch to relate the cleantech survey results and the industry consolidation predictions, but to some observers these are definitely inter-related trends. As larger, generalist firms have been jumping into cleantech over the past months, they are coming in with the need to write larger checks. This will (on the whole) mean investing later-stage and in "proven" investment areas like solar and biofuels. That's because writing a big check into an earlier-stage company in an unfamiliar technology area is perceived, with some justification, as being pretty darn risky. This is one reason why (as we've talked about here ad nauseam) the headline-grabbing growth in investments into the cleantech sector has been largely driven by a few (or even more than a few) mega-sized later stage deals. Although it's hard to parse out on the basis of just one survey question, the cleantech-related results of the NVCA survey probably indicate an expectation that this dynamic will continue in the sector. A few very large deals by fewer, larger check writers, into just a few sub-sectors of the market, at therefore higher valuations. The possibility of mini-bubbles in particularly hot sub-sectors, particularly later-stage. Meanwhile, the role of the smaller sectoral specialist would likely stay the same, as the bird-dog, going after the as-yet underexamined cleantech subsectors. And as we're already seeing, there will also be plenty of opportunities for these two types of VCs to work well together, where a "new" subsector and specific investment opportunity requires both sector-specific expertise and deep pockets. At least that's what we are all hoping for, and are seeing so far in the market... After all, the underlying economic fundamentals supporting continued rapid growth of cleantech markets are getting even stronger, right? But we'll have to see how 2008 pans out. Perhaps the simplest and most pessimistic interpretation of the NVCA survey and other available data will in the end be the right one...

Over the last couple of weeks of 2007, we'll do a couple more posts here looking ahead at what seems likely to happen in the new year.

In other news:

• Second Wind, a Boston-area developer of electronics and software for wind power project developers, has announced a $4mm Series B round of financing, provided by Good Energies.

• In Israel, the newly-launched Tamarix Ventures is aiming to become Israel's largest cleantech venture capital fund, at $100mm.

Finally, my firm @Ventures is looking to bring on a couple of Summer Associates in 2008. First-year MBA students with a strong technical background in cleantech and an interest in venture capital should check out the job posting here.

Meir Ukeles of Israel Cleantech Ventures has been busy lately, but he still found time to write the following update on how hot things have been over there lately (thanks, Meir!):

On October 30, Israel will host a cleantech conference cosponsored by the Cleantech Venture Network, Ernst & Young, Morrison & Foerster, and my firm Israel Cleantech Ventures, as part of the larger WATEC water technologies week event. Ahead of this event, here are a few thoughts on why Israel is emerging as an important hub of cleantech innovation.

Fueled by acute constraints in natural resources, Israel has spawned a number of successful water technology and alternative energy companies, including recognized names in drip irrigation (Netafim), desalination (IDE), geothermal energy (Ormat), fuel cells (Medis), and solar thermal energy (Solel/Luz). These successes, a wave of immigration from the former Soviet Union, and the inherent strength of Israel’s academic institutions in these areas have led to world class cleantech capabilities and more than 350 active cleantech companies in Israel today. The roots of this growing community of cleantech entrepreneurs can be traced to (1) established or “legacy� industrial companies active in energy, water, chemicals etc., (2) academic institutions with long histories as research leaders in energy and water sciences, and (3) “crossover� initiatives or entrepreneurs moving into cleantech from traditional areas of Israeli technology leadership such as power electronics, semiconductors, and even biotech and agritech.

Many of the ‘startups’ that are emerging from the first two constituencies are the fruits of years or decades of research in industry or academia, that now feel the pull of markets actively seeking technological solutions. We are also seeing a growing stream of ‘crossover’ serial entrepreneurs launching their newest companies in the cleantech fields, motivated not by a desire to the planet, but rather by a conviction that these markets offer opportunities that dwarf those of enterprise software or semiconductors. As just a small snapshot of what’s happening in this respect, we’ve seen founders or key members of some of the most recognized names in Israel’s high tech world (Checkpoint, Comverse, Chromatis, Scitex, and many others) now involved in launching cleantech companies.

Israeli cleantech companies must overcome the same challenges faced by counterparts in other countries, including the challenge of penetrating often risk-averse customers in the energy and water markets, managing cash burn rates against long sales and adoption cycles, etc. However, Israeli companies do operate under some unique constraints, starting with their distance from and historical lack of familiarity with many of the key customers and channel partners for their products and technologies. Just as an earlier generation of Israeli entrepreneurs had to learn the hard way how to partner with and sell to Cisco, Nortel, IBM and Microsoft, the cleantech entrepreneur must learn to navigate and fill critical technology gaps for GE, Siemens, Sunpower, Alsthom or ABB.

On the positive side, Israeli companies have a number of factors working in their favor. The global nature of the water and energy opportunity plays to the strengths of Israeli entrepreneurs that seem equally comfortable pursuing business in New Delhi as they are in New York. Israeli companies also benefit from the existence and effectiveness of a number of entities that have emerged as key enablers, including Israel’s national water company, Mekorot, the BIRD (Israel-U.S. Binational R&D) Foundation, and the Ministry of National Infrastructure which is working on development of domestic incentive programs for alternative energy modeled on precedents like the German EEG.

When speaking with investors and other funds outside of Israel, we are frequently asked what we see as the most attractive niches in the Israeli cleantech landscape. There are a number of areas in which we have seen a greater quantity and quality of companies emerge in Israel, including a broad spectrum of water efficiency, quality and treatment technologies, power electronics and energy storage, as well as some aspects of solar energy. However, the simple truth is that Israel’s most important resource is its entrepreneurs – a seemingly inexhaustible supply of talented business people and technologists who excel at looking beyond traditional ways of solving market problems and inefficiencies. That, coupled with the truly colossal demand for technologies to address the world’s insatiable need for clean, accessible energy, water and air, is what is already putting Israel on the map as a global cleantech player.