$7.7B in cleantech venture investments in 2008.  That's the record number Eric Wesoff has tallied up -- and it may not include some deals done at the end of the year, so that number may go up.  More great work from Eric, who's been consistently able to come out with the fastest numbers each quarter... (Eric also touched upon one of the topics of the @Ventures "what's wrong with cleantech VC" presentation when he argued that early stage hasn't completely dried up, since "at least 30 of the 115 greentech deals this quarter were seed stage or A rounds."  But since no one has ever said that early stage is non-existent, I would argue that having only 26% of deals be in early stage is pretty indicative of an imbalance in the market.  But I digress...) So what do Cleantech Investing readers think 2009 will look like?  I'd asked folks to take part in an online survey over the holidays, to gauge how optimistic or pessimistic everyone was feeling.  The short answer:  Not super-optimistic, but not really pessimistic either. Basically, it's a good thing I'm not a bookie, because I wasn't very good at setting the over/under! Question 1:  Who are C.I. readers? There's always selection bias in a survey like this where people choose whether or not to participate, but about 1/4th of the participants were venture investors; 1/4th were entrepreneurs, other investors, or other corporate participants in cleantech; 14% were some kind of service provider; and the rest weren't actively involved in cleantech, just interested.  So a nice mix of folks across and from outside the industry. Question 2:  Will cleantech VC dollars in the U.S. drop by more or less than a third in 1H09 vs 1H08? Two-thirds of readers think that the venture dollars will drop versus last year.  But almost half of all respondents felt that there would be a drop, yet of less than 1/3rd. So more than three quarters of participants took the "over" here, meaning readers are more optimistic than my prediction... Question 3:  Will cleantech VC deals (numbers, not dollars) in the U.S. drop by more or less than 20% in 1H09 vs 1H08? 83% of C.I. readers took the "over" here, including 24% who feel that the numbers will actually rise.  But again a majority of respondents feel that the deal numbers will drop. So basically, C.I. readers expect deal counts to fall, but only slightly. Question 4:  Will cleantech VC dollars into China rise by more than 25% in 1H09 vs 1H08? A solid 71% of C.I. readers think that venture dollars into China will actually rise.  But those readers were pretty evenly split as to whether the rise would be as much as 25% or not.  And almost 3 out of 10 readers feel the dollars into China cleantech will actually fall. Question 5:  What will be the "hot" sector in 1H09? I made this question intentionally undefined, and also failed to include carbon markets in my list (thankfully one reader called me on it). The answers were all over the map, with every listed category (and some unlisted) getting at least one vote, but the two most popular choices were Energy Efficiency and Solar, each getting over 30% of the votes.  Energy storage came in third, with 1/4 of the votes, and after that came everything else.  Readers don't expect a huge year for biofuels, vehicles, water, green buildings, or advanced materials, in other words. But everything got at least ONE vote. Question 6:  What will be the headline that best captures the 1H09 cleantech venture capital market? This one was just for fun, and there were a lot of great answers.  A sizable minority of answers were pretty pessimistic -- talk of bubbles bursting or unsustainable levels of investing.  And a sizable minority of answers were pretty pessimistic -- talk of sustained market growth and good support from the new administration. A couple of ones just to pull out in particular that I found interesting:

"Return to VC Basics" "Winners Emerge as Wheat Separates" "Transportation Electrification Dominates Thinking" "I have no idea."

It's probably a safe assumption that last one didn't come from a VC.  None would ever admit something like that! Thanks to everyone for participating!  When the 1H09 tallies come out, we'll revisit and see how accurate everyone was... . . . .

'Tis the season for VC predictions, and the NVCA says that VCs still think the world of cleantech, so what kind of cleantech VC blogger would I be if I didn't have a few predictions of my own... But let's break with VC tradition and make some predictions with teeth.  And then let's break with tradition further and let readers vote on them.  No more VC "predictions" like "government will play a bigger role in cleantech" or other so-safe-its-useless bromides -- here are some predictions where I'm setting a quantified "over/under" and then readers are invited to click here to participate in a very brief survey to place your bets on whether I was high or low. 1.  As Michael Kanellos already wrote about, I think it's likely that US cleantech venture dollar amounts could fall significantly in 1H09.  That's because if you look at the Cleantech Group's totals over the past few quarters, the top 5 mega-deals have made up rougly 35-40% of the total.  If those mega-deals and similar large late-stage deals are going to be particularly tough to come by (because VCs and others aren't able to count on near-term exits, etc.), then the dollar amounts could fall significantly even if deal volumes don't fall that much. Just a simple shift back toward more early stage investing would by itself drive the dollar amounts down significantly. Thus, I told Michael I wouldn't be surprised to see the U.S. dollar totals fall 40%.  But I've set the over/under at a 33% drop.  What do you think? 2.  I do think there will be a contraction in deals, but to a much lesser extent than the contraction in dollar amounts, for the reasons described above.  Many investors have put on the brakes, but many still have dollars to spend, and early stage in particular seems to still be "okay". For the U.S., I've set the over/under on the reduction in the number of cleantech venture deals from 1H08 to 1H09 at 20%.  What do you think? 3.  In regions other than the U.S., it will be interesting to see how things play out.  Europe, for example, I expect to look like the U.S. in terms of drops in dealflow and dollars.  But in the still-growing (albeit more slowly) economies of China and India, I think many generalists and even cleantech specialists may find a place to put down some bets where the natural resource shortage thesis still holds true and the underlying economic growth story looks better. So for China, I've set the over/under on the growth in cleantech VC dollars (1H08 vs. 1H09) at 25%.  What do you think? 4.  All I have to go on is anecdotal evidence from my conversations with fellow investors, but it seems like VCs I speak with are now nodding their heads a lot more vigorously when I say that I think there's no way solar will continue to be 40% of cleantech VC dollars like it has been so far in 2008.  There seems to be more interest in broadening into more of the cleantech market, and in particular more investors say they're looking at energy efficiency these days. So I think the "hot" sector (as unfortunately, but necessarily defined by some loose combination of growth in deals and growth in headlines and VC quotes in stories) will be energy efficiency.  What do you think? 5.  Finally, I think that while it won't be at all unhealthy for the sector to see solar venture dollars decline significantly, overall dollar and deal tallies fall, it won't be reported that way.  Journalists don't deserve the abuse they get from everyone (and mea culpa, guys... happy holidays to you, too), but still, they're incented to find controversial stories to write about, and the finer nuances of dollar amounts vs. deal amounts, etc., don't often make it past the editor. So I think the defining headline of 1H09 will be "cleantech venture bubble bursts".  What do you think? Take the survey to add in your thoughts, and we'll take a look back at it once we get into the new year to see how these predictions worked out! ----------------------------------------------- Readers have continued to provide great feedback on the "What's wrong with cleantech VC?" presentation from @Ventures that I posted a couple of weeks ago. Reader P.S. of Massachusetts (who's been raising a Series B) writes:

I have found that most of the money is interested in early stage deals and not mid to late stage deals, which is different than the data you presented.  One possible explanation is sector, that the vast majority of clean tech deals are solar-related so there is a lot of late stage activity there.  In our sector (biochemicals), most of the companies are still in early stage (we're among the first to commercialize a product – already generating revenue).  So my question, is your data solar-skewed?

Sure, if the overall industry is solar-skewed then the data will probably reflect that on all more general topics as well.  But I don't think if you removed solar from the picture, the follow-on vs. early/seed stage picture would flip.  Follow-on deals would probably still significantly outnumber the earlier stage deals.  Does that mean early stage is dead?  Of course not.  So P.S.'s comment is a good reminder that these trends are only indicative of overall patterns, they're not absolutes.  Early stage companies can definitely still find interested investors. But I keep coming back to the numbers, which tell their own story.  And also to the fact that the very large funds that have recently been raised "locks in" a late-stage focus almost by necessity -- if you have to deploy $400mm across a small number of partners, either you need to be writing large checks (which then steers you toward later stage deals), or each partner needs to be juggling a dozen board seats.  Will there be a shift back toward earlier stage investments, esp. in 1H09?  Probably.  But it'll be tough for some of the bigger pools of capital to make that happen in any major way... Reader M.J. of California writes:

Nice work Rob. I think many agree w/ you, but as you mentioned don’t talk about it publicly. Today it’s trendy and cool to do late stage cleantech investing…how the hell you get to that w/o early stage investing is the question – especially when it’s only been a category in earnest for the last 3-5 years and that’s being generous.

There've been some interesting comments on the original post as well, check them out. More comments, reactions and feedback are definitely welcomed.  Supportive or not!  It's great to get a dialogue going on these things. Either post your comments, or email me -- I'll continue to post interesting ones I get. It's also fascinating to see how the presentation points out five trends, but really everyone seems zeroed in only on the stage (late vs. early) one... . . . .

A few things of potential interest...

• A good tool for all you cleantech VCs and Founders out there: Joel Moxley, an EIR at Northbridge, came up with a pretty useful prior-art search engine, PriorSmart. Check it out.

• Must-read: A terrific article on Georges Doriot, "venture capital's grandfather".

• Here's a good interview with Susan Preston, GP at CalCEF's new Clean Energy Angel Fund.

Deals from the past week:

• Evolutionary Genomics, which is developing biofuel feedstocks with improved yields, has raised a round of financing (amount undisclosed) from Altira Group.

• Small-wind innovator Mariah Power has taken in an additional $500k in financing, from Greenhouse Capital Partners and Big Sky Partners. It's unclear if this was a Series A or just a continuation of their seed round from last year.

• Jonathan Shieber at VentureWire wrote today that AMR developer Silver Spring Networks has raised an additional $17.4mm in what appears to be an insider Series C extension (with members from existing investors Foundation Capital, Edison Electric Institute and JVB Properties participating). The original Series C was previously reported to be $40mm, last year.

• LED developer Bridgelux raised a $30mm Series D and $10mm in lines of credit. VentureTech Alliance led the round, and existing investors DCM, El Dorado Ventures, VantagePoint, Chrysalix Energy Venture Capital and Harris & Harris Group also participated.  This follows on the company's $23mm Series C from last summer.

• Greenline Industries, which claims a biodiesel production process that doesn't require the use of water, has raised a $20mm financing, led by Leaf Clean Energy.  Somewhere, Jim Matheson's ears just perked up...

• Brighter Planet, an online clean energy services and info provider, raised a $3.2mm Series B.  Crow Hill Ventures led the round.

Cleantech regional updates:  Here's a good article on all the various efforts around the U.S. to create new cleantech clusters...  And then I thought this recent comment by Tim Chapman (who writes the Clean Ventures blog focusing on UK cleantech investing) was worth elevating for everyone -- his response, after I had previously mentioned an article lamenting the dearth of venture capital in his neck of the woods:

That Independent story on the UK VC scene is a little overblown - 3i’s been doing next to nowt in the early-stage space for years, so their recent announcement just confirmed what everyone knew. Established firms move up-market - it’s always happened, and will continue to do so. Anyway, 3i’s not symptomatic of the UK market - they’re adamant they’re a global player, so the move should say as much about the global market as the domestic. The figures show an increase in seed and early-stage deals, at least up till 2006, for the UK and Europe. It’s not as active a market as in the US, but it’s still in relatively good shape. Interestingly, a fair few low-end investors I’ve spoken to say that the problem isn’t in VC supply, but in demand - there’s barely enough quality early-stage businesses to take the money that’s currently in the market. Maybe that says something about the appetite for risk, or quality of entrepreneurship, but I don’t think lack of VCs is the problem.

Thanks much, Tim. Finally, it's not really about the venture capital side of things, but I thought this interview with David Kurzman of Panel Intelligence was interesting.

Last week I wrote about an email a colleague had sent me, with a frustrated critique of cleantech VCs. Since that post, readers have been emailing me their thoughts and reactions. Some agreed with my take (disagreeing with a couple of key points in the email), and some came back with strong agreement with the email (one reader's reply, which was provided for background only, went so far as to argue that the email understated the problem). One Boston-area entrepreneur, Scott Rackey, had a very thoughtful take, one that he was gracious enough to let me share with everyone:

As with most statements of this tone, it is partially right. At some point all funds focus on later stage deals (fad or no fad) with good reason. Most funds have a fixed life. As funds get older, a VC's focus appropriately shifts to later stage deals. This is analogous to an individual gradually getting out of high growth equity investments as they approach retirement. There is nothing inappropriate in this. But what about those funds that still have plenty of runway? They don't have the same excuse. I would argue that VCs are not trying to anticipate irrational investing fads - they are creating them. It starts by VCs honestly trying to anticipate fundamental industry change, "inflection points", (insert your management buzzword for big shift here). This is a strategy that helps save time because it frees the investor from looking at every deal on its individual merits. There are "sweetheart" deals in every industry regardless of how slow the larger industry itself may be. However, finding and vetting these deals takes too much time. So, investors instead try to identify investing "spaces" that are about to boom. The thought is that "a rising tide raises all boats". They place a few bets within the target investment space and then hope they guessed right. The thing is, VCs all talk to each other - a lot. (Life gets easier if someone else does the legwork to identify a promising investment space.) Add in a fear of looking stupid for passing up a great opportunity plus a general herd mentality, and before you know it, you have an investing fad. Nobody tried to make it happen. It is just an emergent behavior of the crowd. Some people make money while others pay too much because they are too late. Nonetheless, the behavior is stable and these cycles seem to keep happening. Examples are fuel cells, distributed generation, solar, biofuels, demand management, carbon credits, etc. This strategy of picking the opportunity before finding the company is pervasive. When VCs are interviewed, they are typically asked what sectors they are targeting and why. They usually do not say "we look at every deal individually" without winking because they cannot be experts in all industries. Instead they say something like "we are very excited about the (XXX) sector because we believe that growing shortages of (YYY) combined with an industry shift to (PPP) and/or increasing regulation of (ZZZ) will create unprecedented opportunity. We are quietly looking at several excellent deals in that space right now!" I see this as a CEO all the time. Investors have already emotionally decided whether or not they like my deal before they even hear it. I either fit in one of their target investment spaces or I don't. This is especially problematic for my company which is in the fuel cell space. I even had one VC (who was new to the Cleantech space) say "we are not considering fuel cell deals - we heard they didn't work out." Clearly, the investing fad for my sector is past - for now. I should hasten to point out that this fad-creating behavior is for new investments only. Once a VC has taken the leap, I believe that most are extremely loyal and supportive partners in the effort to build a successful company. I personally have not seen VCs that are deliberately engaging in some kind of "pump and dump" strategy. What I have personally seen is that my VCs work very, very hard to make my company successful. For the most part, these are honorable people doing the best they can with a hard problem. So what is a CEO in an out-of-favor space to do? You have to find the right VC. There are VCs out there that have the resources, reputation and fortitude to lead the herd. They are the ones trying to identify the next industry shift that will create opportunity. If you have a good enough deal, and you can convince that one VC, you can be the deal that all the later ones try to copy. What is my advice for the VC? Try to be that right VC that can see a little further and does not care what your peers think. Hell yes, it is risky for you personally rather than just risky for your fund, but if you don’t take risks…

I received an email from a frustrated colleague in financial services the other day, and with his permission I thought readers might find it interesting to take a look at some of what he had to say:

“99% of VC’s are looking for the same thing...a later stage company where they can get lucky with a near-term liquidity event at an inflated price without doing a lot of work.  I do appreciate the drivers for this reality:  VC’s are typically woefully understaffed and are usually  managing more money than they can effectively put out unless they participate as relatively passive players in bigger deals where they can ride the coattails of others.  The key limiting factor is time...not money.  I also appreciate that the gestation cycle of Cleantech companies is long and, unless you stumble across a terrific early stage opportunity, you will do better betting on a later stage company and “flipping� the deal to the public. The end result is that very little is actually produced by the process, and what is produced is done so very inefficiently.  I submit that there are two ways to make money in the VC business...1) build a company and 2) anticipate a fad.  The first is very hard and very few VC’s can actually pull it off...it also takes a long time and the whole VC system does not reward waiting around for 4-5 years while you build a company...your LP’s wouldn’t stand for it.  90% of all VC gains come from investing ahead of a “public valuation fad�.  The name of the game is to get in at a relatively late stage and flip the deal to the public at a ridiculous price...then sell out, having done very little for the world. You probably don’t remember the early Cleantech euphoria...Plug Power came out at $15.00 per share, and went to $150 in 6 months...the investors in the deal congratulated themselves on their good work and their wonderful “value added�...of course, Plug went to $10 per share six months later and it was amazing how quiet the brilliant VC’s were...the same thing happened with Capstone and with many others...as well as with the over-priced ethanol and solar deals of recent history.  The only thing that was accomplished was that a lot of money was wasted in the process...but, if you were lucky as a VC to get in and get out...it allowed you to raise your next fund and keep going.�

So what do readers think?  Is this spot-on?  Partially right?  Or way off base?  Comments (add them to the site below, or email them to cleantechvc [at] gmail.com) are welcomed -- and if you want them kept anonymous, just let me know. As for me, I don't know whether to be flattered ("hey, I'm in the 1%!") or just to shake my head. For many investors I know (and certainly including myself), we're in the business of maximizing returns by helping to build companies for the long haul.  Yes, exits need to be visible within a certain time horizon, but those exits for investors aren't the end of the effort, they're just the beginning of the next stage of growth for the company.  As the examples given in that email, and plenty of others as well, have shown, it's often not a winning investment strategy to rush a company to exit before it's ready.  But build a world-class company around a winning product or service offering, and the exit opportunities will be there (well, it's not that simple, but you get my point).   This is all speaking very generally, of course -- sometimes the appropriate exit path will be short, sometimes it will be longer.  But the important thing is that either way, the truly value-added VC will be working hard alongside the company's management team to build a company, not to "flip" anything.  So while there may well be some VCs like this email describes, it's far from 99% of the community. The gestation period comment is also interesting -- yes, in many of these technology areas, the time to market from time of invention will be longer than in other venture sectors (think Web2.0, for example), this is something we've talked about before.  But that doesn't necessarily mean that going all the way to later stage is the winning approach.  It just means that early stage investors have to be very knowledgeable about the wide variety of markets we're evaluating opportunities in, and it means staying disciplined about not getting in TOO early.  This longer gestation period is a special challenge for seed and angel investors in cleantech, which we've discussed before, but it's not what's driving the big trend toward later-stage investing in the sector.  That's probably being driven, instead, by the lack of comfort felt by many of those investors who have been very recently jumping in, and the overall trend across all VC sectors toward later-stage investing. So there are a couple of key points here where I strongly disagree with this email.  But there's also a lot of food for thought... What do YOU think?

Thanks again to all of you who participated in the Cleantech Investing Readers' Survey over the past week.  Pretty good turnout, actually, esp. considering how many folks were on vacation and out of the office over the past few days...  As promised, we randomly selected a few participants to receive either a mug from demand response system provider (and @Ventures portfolio company) Powerit Solutions, or a USB memory stick from GreenTech Media -- we've emailed those folks already to get their addresses, so the rest of you will have to settle for our heartfelt gratitude... The results provide some pretty interesting predictions for 2008.  But first, it's useful to note that the participants came from across the spectrum of cleantech market participants:  Investors, entrepreneurs, service providers, students, government types, even a self-described "rancher".  "Entrepreneur" got the highest number of responses, but no category claimed more than 25% of participants, so it's a nice broad sample. So to jump right into it -- is there a cleantech VC bubble? Participants overwhelmingly (95%) felt that there is not an investment bubble across all cleantech categories.  And they expect strong growth in the volume of cleantech venture deals in 2008 (a 64% plurality chose "will increase 10-50%", and only 12% expect deal volumes to drop).  However, participants felt (79%) that there ARE bubble-type conditions in specific investment subsectors.  And biofuels and solar were overwhelmingly fingered (each by about 2/3rds of participants) as being the epicenters of these bubbles. The theme that solar and biofuels are and will continue to be somewhat over-bought came through clearly throughout the survey.  When asked what sectors might see bubble conditions develop in 2008, solar and biofuels were again the strong favorites (although notably, demand response/ energy efficiency and advanced lighting got more than a few votes).  I did inexplicably forget to include energy storage when laying out the various categories, and a couple of readers volunteered this as another suspect investment area going forward. Energy efficiency and demand response is clearly a crowd favorite sector right now.  When asked where they would like to invest right now, 90% of those surveyed rated this sector as "Attractive" or better.  Perhaps unsurprisingly, most of the cleantech investment sectors mentioned got strong support from survey participants -- with the exception of biofuels, which seems to have lost some of its luster:  Only 27% rated the sector as "Attractive" or better, and more than 50% gave it a low rating (1 or 2 out of 5).  Solar, water, advanced lighting, advanced materials, and new tech in incumbent energy all received very positive ratings, however.  It's particularly interesting to see solar get such a high rating (52% at "Attractive" or better) in light of the bubble sentiments described earlier... And in terms of exits, as we discussed earlier this week?   When asked to indicate the sub-sectors within cleantech where they expect to see "spectacular" successes in 2008, solar (43%) and energy efficiency/ demand response (45%) got high marks.  Advanced lighting and advanced materials also had a strong showing, but aside from solar and EE/DR no category got a thumbs up from 20% or more of participants. In terms of "spectacular" failures, solar (50%) and biofuels (61%) are the two sub-sectors where CI readers expect to see a shakeout in 2008.  No other sector had even10% of respondents expecting major failures in the coming year. Putting it all together, it seems that:

• CI readers think too much money is chasing too few opportunities in biofuels, despite all the visible government support for the market, and they expect some kind of a shakeout in 2008.

• CI readers also think that there have been some questionable venture investments made in solar, but that 2008 will present a mixed bag of some big wins, and some big collapses.

• Readers seem to generally look to energy efficiency, demand response and advanced lighting as possibly being the "next big thing" in cleantech venture capital, but there is already some contrarian sentiment out there expecting investors to jump into these sectors too quickly as well.

Finally, when asked what investment areas should be getting more attention from VCs than they are so far, the results were very interesting -- and I'm keeping those to myself. Just kidding.  No, the responses were all over the map:  Energy efficiency, water, wave energy, geothermal, energy storage of various flavors, waste-to-energy, clean coal, wind power, etc., etc., etc.  Even vertical farming got a nod!  What this really demonstrates is the depth and breadth of the investment opportunities in cleantech.  When asked to pick just one under-examined investment area, readers came up with a long laundry list of opportunites... So there you have it, your CI Reader Predictions for 2008.  Thanks again to all who participated.  This worked out well, we'll have to do it again next year -- but with better thought-out questions and more fun prizes!

Loyal Cleantech Investing readers -- We'd like to invite you to participate in a very brief year-end survey, to share your thoughts on 2007 and predictions for 2008.  This is your opportunity to share your opinions on the market with your peers and colleagues in the industry. Please click here to take the Zoomerang survey.  It being a busy time of year, we've kept it very short, it should only take you 5-10 minutes.  The deadline is a week from now:  Friday, December 28. To add to your motivation to participate, GreenTech Media has kindly offered up a few GTM USB memory sticks -- perfect for sharing your business plan or marketing materials at your next cleantech networking event.  Also, demand response/ demand control system developer Powerit Solutions (an @Ventures portfolio company) is also offering up a few coffee mugs to participants as well!  A few lucky, lucky winners will be randomly selected from the respondents, so make sure to include your email address (spam-free, I promise) at the end of the survey, so I can get in touch with you if you win one of these highly coveted prizes. So take the survey today!  The results should be pretty interesting, stay tuned...