The Changing Face of Venture Capital in Greentech

Just two-thirds into the second quarter of 2009 and VC investment in greentech has already exceeded last quarter’s dollar and deal totals.  Our official total for the second quarter, so far, is $907 million – but factor in the “undisclosed rounds” of which there were many – and the total easily exceeds one billion. 

VC investment in greentech is tracking this quarter’s uptick in corporate and PE  investment according to various company reports, investment banks and NEF.

So much for the negativists with their talks of greentech bubbles and the death of venture capital – although, there certainly are still difficulties with the venture capital model.

Fred Wilson of Union Square Ventures has crunched some numbers and claims that “VC doesn’t scale.”  He has determined that: “You cannot invest $25 billion per year and generate the kinds of returns investors seek from the asset class,” and that, “The number that the asset class can take on each year is around $15 billion to $17 billion. It's interesting to note that the industry raised $4.3 billion in the first quarter of 2009. That's a good thing. If we can keep it to that level, or less for a while, then we may be able to downsize and get returns back on track.”

We are already seeing smaller funds, smaller investments, leaner, more capital efficient companies and lowered exit multiple expectations.  This starts to look like a return to reality for VC investors, their limited partners and the entrepreneurs in their portfolio companies.

Year               Total VC in Greentech       Number of Deals
2005                      $820M                         74
2006                      $2350M                       124
2007                      $3478M                       222
2008                      $7584M                       350
Q1 2009                $836.1M+                    59
Q2 2009 So Far     $907.5M++                  62

VC Stats (Stats from the NVCA)

Forty U.S.-based venture capital firms raised $4.3 billion in the first quarter of 2009, according to Thomson Reuters and the NVCA. This represents the lowest number of funds to raise capital since the third quarter of 2003. On the upside, the actual amount of capital raised was higher than the $3.5 billion raised in the fourth quarter of 2008.

• Revenues at VC-backed companies accounted for 20.5 percent of the nation’s GDP

• VC-backed companies represented 8.6 percent of all employment

• There are 12 million jobs at public firms that were once VC-backed

• There were 1,171 new VC-backed companies in 2008

• There were six IPOs and 341 M&A transactions in 2008

• It takes on average 9.6 years to get VC-backed companies public (or 6.5 years for an M&A transaction)