As the move to green buildings matures, the next wave of venture capital (VC) will center on startups that make net-zero buildings possible.
Net-zero buildings produce as much energy as they consume, requiring investments in both energy efficiency measures and in renewable energy generation.
Investors have pumped $4 billion into the "first wave" of green building technologies over the past 12 years, mostly to make them more energy efficient.
Those investments are maturing and average deal sizes are getting bigger and going to late-stage investments. About half of VC investments for 2011 - $445 million - fall into that category.
"Early VC investors are looking for exits for the first wave of successful green buildings startups and the seeds of the next crop are being sown in on-site generation and sustainable materials," says Ryan Castilloux, analyst for Lux Research and lead author of "Building a Green 21st Century: Tracking Venture Investments in Green Buildings to Uncover New Opportunities."
North America Captures Most Cash
Startups from North America have attracted 77% of the green buildings VC invested so far ($3.1 billion). Of the 295 transactions tracked from 2006 to the middle of 2012, 219 rounds involved North American companies.
Asia-Pacific green buildings companies netted $484 million in 16 deals since 2007, with an average deal size of $30.3 million. The largest investment since that time was $100 million, which went to Himin Solar Energy Group, a maker of solar heating systems.
Europe raised $415 million since 2002, although average deal sizes were much smaller than for Asia-Pacific. The biggest round was $59.39 million for Odersun, which makes integrated solar PV modules.
Israel has drawn more than $35 million since 2006. That money went to four startups: Metrolight (energy-efficient lighting), Phoebus Energy (hybrid water heating), Pythagoras Solar (integrated PV windows) and Panoramic Power (energy management systems).
4 Promising Future Investment Areas
Trends since 2010 suggest four emerging areas:
- Integrated Design: The European Union's net zero energy building mandate takes effect in 2018. Coupled with similar US directives, this is driving investments by architects and construction companies in integrated design. Examples are Project Frog and Blu Homes.
- On-site Generation: represented by companies like fuel cell company Bloom Energy and solar heating company Himin Solar Energy Group, this sector has taken in $585 million since 2006. A new framework of incentives for on-site power generation and combined heat and energy (CHP) is pushing more investment. Companies to watch include Baxi and WhisperGen (which both make micro-generators) and companies with systems that convert waste heat to electricity such as ElectraTherm and TASenergy.
- Energy Services: SCIenergy, Seldera and Incentergy are examples of this group of companies, which enable building owners to invest in efficiency and energy savings upgrades without any upfront costs. While these sorts of contracts have been available for large building owners for some time, what makes this group notable is the focus on smaller buildings.
- Low-Carbon Concrete and Cement: concrete production accounts for 4% of all global carbon emissions and since 2005, VCs have invested $114 million into seven low-carbon producers. Lux expects these materials to become the norm in areas of rapid urban building, such as China and India.