Investors Bet On Cleantech

Defying the risks inherent in bringing green energy and chemical projects to market, the private investment firms Khosla Ventures and TPG Capital have committed nearly $1 billion in new funding to advance clean technology companies.

Khosla Ventures, the venture capital firm run by Silicon Valley investor Vinod Khosla, has raised $1.05 billion for a new fund, Khosla Ventures IV, intended to help entrepreneurs “harvest breakthrough and innovative ideas.” About half of the fund will go to early-stage cleantech companies; the rest is targeted at information technology, mobile phones, and Internet firms.

Khosla says his previous investments in cleantech companies have generated nearly $1 billion in profits. Notably, three Khosla-backed firms have completed public stock offerings in the past 13 months: Amyris, which develops renewable fuels and chemicals; Gevo, which makes isobutyl alcohol; and KiOR, which produces a fuel raw material from biomass.

Separately, Texas-based private equity firm TPG Capital is backing a plan by Italy’s Mossi & Ghisolfi to license its Proesa process for converting biomass into ethanol and industrial chemicals. The partners will invest $345 million in their joint venture, Beta Renewables, which will include a 40,000-metric-ton-per-year cellulosic ethanol plant that M&G is building in Italy.

Although the investments are impressive, they are contrary to what the consulting firm Lux Research is seeing more broadly in the cleantech industry, according to Research Director Michael Holman. TPG’s backing of a new biomass conversion process is particularly unusual, Holman says, because private equity firms “don’t often take high risks on new processes.”

In a new report on investing in biobased materials and chemicals, Lux found that many venture capitalists are actually moving away from the cleantech space because of the capital needed and the long payback period. And they are being more selective in where they invest.

Moreover, some cleantech firms that made it past the start-up phase and launched on the stock market now aren’t doing especially well, Holman notes. For instance, shares of Solazyme, which derives oil from specialized algae, and enzyme maker Codexis are down by 50% or more compared with their original offering price, he says.