However, the increased involvement of corporate VC arms and strategic investors is a relative bright spot in the cleantech investment landscape. Corporate venture investment in cleantech was $620 million in Q2 2012, up 319 percent from Q1 2012, according to CB Insights. Corporate funding has become a bit of a cushion for VCs in difficult times.
Bill Reichert of Garage Technology Ventures believes in a new approach to cleantech investing and working with corporate investors.
Reichert said, "We've seen a lot of pain in the cleantech market as cleantech VCs have backed away. But the corporates still need this innovation. We've seen corporates come in as VCs have backed away."
Garage has raised funding from an unnamed vendor as the initial LP in a new strategic corporate investment program. The new fund "is not set up with a traditional fund structure, because corporates have been frustrated by the typical fund structure." Garage is co-managing an investment off the corporate's balance sheet and is being paid a management fee "with an opportunity for upside."
The first fund is focused on energy technology and cleantech materials.
Reichert said, "This helps corporates get into the innovation ecosystem earlier. It's a way to work with corporate partners that have a strategically important need."
"The big guys usually invest in later-stage deals," Reichert added, and he contends that these investors don't have a lot of experience working at the earlier stage. Joyce Chung of Garage notes that this investment vehicle can help these corporate investors "understand the game of early-stage venture."
"The innovation for us as Garage, a trusted brand, is to act as a bridge between the entrepreneurs and the corporates. There needs to be a bridge that can talk to both sides, said Reichert, adding, "We are identifying their domains of strategic interest and identifying technologies that are not on their radar."
Corporate investors have different revenue expectations and timeframes than standard VCs. They also have potentially deeper pockets. But the traditional complaint hurled toward corporates by VCs is that the deals took too long and that goals were not always aligned. This type of investment vehicle might change that perception.
This year, late-stage funding from firms such as Monsanto, BASF and Wanxiang Group have funded Sapphire, NanoH20, and GreatPoint Energy, respectively. Five of the top ten VC deals in Q1 had corporate participation, as did a quarter of all deals.
Reichert wants the cleantech community to know that the investment firm is "open for business and looking for brilliant entrepreneurs" in advanced materials and renewables. He said, "There's fresh money coming into cleantech."
(On an unrelated note, Garage was one of the few parties, excepting perhaps recent CEO John Carrington, to land real returns from thin-filmsolarfirm MiaSolé. Garage "sold a big chunk of stock in the third round," when MiaSolé stock had a valuation of $400 million.)