Greentech VC Funding Update from Silicon Valley

“Great companies are bought, not sold.”

Eric Wesoff February 18, 2010

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

Law firm Orrick hosted another of its semi-regular greentech events. You'd be surprised by how many people come out early in the morning for free coffee and greentech chat in Silicon Valley -- 150 people gathered to listen in to this panel focused on venture funding.

Joe Muscat of Ernst & Young spoke about VC numbers in greentech. According to Ernst and Young, greentech represented 8 percent of total venture capital transactions and 12 percent of venture dollars in 2009. Notably, $60 billion of government money has been allocated to green, but only a third of that has actually been distributed, according to Muscat. He sees considerably more funding coming into the greentech sector in 2010.

A brilliant question was posed to the panel: Do strong venture funding levels serve as an indication of the health of the industry, or are they just a sign of investor exuberance? Warren Hogarth of Sequoia Capital tried to answer the question by noting that "the jury is still out" on that one. He added, "Despite the immense amount of money invested, there have been virtually no returns. There has been a lot of euphoria, but it's not correlated to the industry. It's more about LPs giving money than an indication of the health of the industry."

Sequoia was an early stage investor in battery firm A123, and more recently, emeter. Seed investing is an important part of Sequoia's program.

According to Ernst and Young's Muscat, "We haven't seen much in the way of exits." He added, "There's so much uncertainty because of carbon and climate growth -- there's a challenge for entrepreneurs and investors."

Prakash Ramachandran of Nordic Windpower was on the panel (we covered this firm in detail here). Nordic Windpower's funding process was quite grueling and started in mid-2009. What ended up convincing the investors was the sheer size of the annual wind market and the segment that Nordic Windpower was focused upon -- distributed wind, which is regarded as an underserved segment. "And don't bet the business plan on getting DOE money," he added.

Jim McDermott of energy investment fund U.S. Renewables Group is bullish on wind and recently invested in General Compression, a wind generator start-up that also includes Compressed Air Energy Storage (CAES).

And finishing on exits: Investors are looking for pure play greentech companies, according to the Orrick moderator.

As for the public liquidity market -- there is appetite there, according to Hogarth, although he's very cautious. He stressed that "it won't do the industry any service if we put companies out that run up in the first 3 months and then collapse soon afterwards." Hogarth added that companies are filing, and that there is optimism for those companies, but there is also a pervasive sense of caution. "It's earnings that matter."

Speaking of panels at law firms (and in the spirit of blatant self-promotion) -- I'm moderating a panel at the offices of law firm Pillsbury tomorrow at noon in Palo Alto, CA. It's called BackStage Pass—Mr. Smith Goes to the Valley: Washington's Impact on Cleantech Innovation: How legislation will affect the evolution of the cleantech industry.

See you there.