The Clean Tech Open, a green-technology business-plan competition offering the largest prize pot in the United States, officially opened Wednesday evening. 

When it closes in October, six startups each will receive $50,000, as well as office space and legal, financial and marketing services worth another $50,000, bringing the total value of all prizes to $600,000. The finalists also get six months of mentorship and networking by participating in the contest, according to the Clean Tech Open.

Winners will be selected from six categories, including renewable energy, transportation, smart power, energy efficiency, green building and air, water and waste management.

Contests such as the Clean Tech Open aim to attract early stage ideas that aren’t yet ready for venture-capital funding.

It’s not a new idea. In November, the Massachusetts Institute of Technology raised the stakes for its clean-energy competition -- expected to end in May -- by offering a $200,000 grand prize, which it called the largest business-contest jackpot in the world, and a total of $500,000 in prizes (see MIT Offers $200K for Clean Ideas).

And Wednesday, the University of California at Berkeley’s Venture Lab Clean Technology Innovation Contest selected its winners (see Earth2Tech post).

Low-Cost Fuel Cells, which aims to make a small fuel cell that can convert kerosene into electricity, won the $10,000 top prize; Lagrangian Sensors, which has sensors that can collect data from river systems and send it via cellular and GPS networks, won the $5,000 second prize; and Better Battery Capacity, which is developing a cathode technology that could reduce the cost of batteries and make them safer, and Banyan Energy, which is developing asolar-concentrating technology, tied for third prize, each nabbing $2,500, according to Earth2Tech.

But seed and early stage funding is important and much-needed at a time when VCs are closing larger funds and aiming for larger, later-stage deals, said Susan Preston, general partner for the California Clean Energy Fund’s new Clean Energy Angel Fund, which also was announced Wednesday.

"Competitions like the [Clean Tech Open] are wonderful to have occur, because it allows all of us to see the cream-of-the-crop companies well vetted and so forth," she said.

According to the California Clean Energy Fund, U.S. venture-capital funding at the seed stage dropped to just less than 4 percent of total investments in 2007, from more than 4 percent in 2006.

A report by the University of New Hampshire’s Center for Venture Research (via Don Dodge) found that U.S. angel investment grew 1.8 percent to $26 billion in 2007. But that’s a small amount of growth compared to venture capital, which grew 9.1 percent in the first half of 2007, compared with the previous year, according to PricewaterhouseCoopers and the National Venture Capital Association. 

And because VCs are looking for larger bets, it’s become more difficult to raise smaller amounts of money, particularly between $500,000 and $5 million, Preston said.

Bloggers -- including Greentech Media’s Cleantech Investing author and @Ventures principal Rob Day -- also have questioned whether VC investment is moving toward later-stage deals with potentially quicker returns (see Cleantech Investing posts here, here and here and a post from strategy consultant Sramana Mitra here).

The California Clean Energy Fund is trying another approach to tackle the early-stage funding gap for new clean-energy technologies.

The group on Wednesday announced its Clean Energy Angel Fund and said it already has secured investments from "a wide range" of limited partners, including institutional and individual investors. The new fund, dedicated to seed and early stage investments in clean-energy companies, plans to raise up to $20 million, Preston said.

"The funding gap for seed and startup companies was a driving force behind the establishment of the CalCEF Angel Fund," Preston said in a written statement. "By supporting innovation in its earliest form, we have a chance to foster the clean-energy solutions of the future."