Cleantech Funding Falls In Third Quarter

After a strong first half, worldwide venture capital investment in environmentally-friendly firms hit a snag, dropping 30% from the second quarter to $1.52 billion, likely due to investor concerns about the slow economic recovery, according to Cleantech Group, the research firm that gathered the statistics. Funding for the so-called cleantech companies was also down 11% from the third quarter of 2009.

The cleantech industry continues to raise more venture money than the biotech and information technology sectors. Within cleantech, technologies related to transportation, biofuels, and the electric grid received the most money in the quarter, but the largest number of deals was at firms focused on energy efficiency. Cleantech Group President Sheeraz Haji says energy efficiency deals are attractive because they require small amounts of capital and offer fast payback times. In contrast, funding for capital-intensive solar companies hit a four-year low in the third quarter.

Two of the 10 largest cleantech funding deals went to Chinese firms; the largest was for eHi Car Rental a Shanghai-based car sharing company, which raised $70 million. In North America, the two biggest deals went to Texas-based Kior, a developer of catalytic technology for making so-called bio-crude from biomass, and to Canadian waste-to-energy firm Plasco Energy. Both start-ups raised $110 million.

The slow pace of the economic recovery made the season a difficult one for start-ups that want to access the capital markets with an initial public offering (IPO) of stock. In the third quarter there were only eight cleantech IPOs, compared to 22 in the second quarter. A slow IPO market can hamper new investments by venture capitalists worried about the timeline for investment returns.

What's worse, many venture capitalists have been making the difficult choice to add to their earlier investments to keep funding recipients alive until the economy strengthens.

"Less than 10% of global cleantech venture investment dollars today are going into early-stage deals," observes Dallas Kachan of Kachan & Co., a cleantech analysis firm. "Investors are creating a disproportionate amount of 'walking dead'--companies kept alive, sometimes bolstered by government funding, hoping for an exit. That's capital that new cleantech innovation isn't getting."

The quarter's largest IPO was for Ameresco, a Massachusetts-based provider of energy management and data technology services, which raised $87 million from an offering on the Nasdaq stock exchange. Close behind was California's Amyris, a developer of technology for the production of fuels and chemicals, which raised $85 million on the same exchange. All the other IPOs during the quarter were in Asia, with five in China (totaling $180 million) and one in India (totaling $78 million).