We began tracking venture capital investment in Greentech in 2004 when the sector really didn’t have a name and represented only 1 percent of VC investment totals.
Companies like Nanosolar and Miasolé were just getting started and most VC investors were simply trying to get their heads around this relatively underinvested trillion dollar market.
A few years later, Greentech VC investment represents about 20 percent of the VC asset class -- 2008 finished with a total VC investment of more than $7.7 billion in more than 350 funding rounds, roughly one investment a day, with time off for Christmas and New Years.
Greentech Media just released the most recent quarterly data showing that venture capital investment in green technologies exceeded $2.5 billion in the fourth quarter of 2008, a modest decrease from the previous quarter’s total of $2.9 billion.
We asked Erik Straser, a partner at leading cleantech investor Mohr Davidow Ventures and an insightful analyst of these markets to weigh in on these numbers and here are his comments:
“2008 marks the 'end of the beginning,' an end to the first few years of investment enthusiasm. In the next period, we’ll see investors focus on strong investor syndicates, management teams that have proven they can execute, and value propositions that can truly deliver differentiated economics to the world’s largest markets.�
Rob Day of @Ventures weighed in on his blog last month with his take on the state of greentech investing. His presentation on the subject is here.
Rob sees cause for worry in the way the VC model tracks greentech startup timelines. No argument there -- it takes a long time and a lot of money to scale a new solar or biofuel technology to meaningful volumes. But he also saw a shortage of early stage investors and I’m not sure the numbers bears that out.
My preliminary data shows that investors continue to fund early-stage deals as well as later-stage deals. At least 30 of the 115 greentech deals this quarter were seed stage or A rounds.
Rob also saw the need for VCs to enlarge their scope and stop focusing on solar and biofuels. And VCs seem to be doing just that -- they are digging deep in the greentech sector and looking outside traditional technologies at previously underinvested areas like energy storage, energy efficiency, recycling, water, cleaner coal and green IT.
Still, the IPO door is closed for now and probably for the next four to six quarters. And although consolidation in this market has already begun -- meaningful, profitable VC-scale acquisitions will also be scarce for the foreseeable future.
“We will continue to see investors allocate capital, albeit more cautiously, to cleantech as the underlying macro forces driving cleantech remain unchanged and cleantech looks well positioned to be a significant part of the new administration,� Straser added.
Startups will need to work harder and smarter and VCs will need to be patient. Look for 2009 to be the year of smart grid, energy storage and energy efficiency.
