The last two years have been tough on young companies that need to raise capital, but 2010 ended strongly and 2011 promises to be even better.
Worldwide cleantech investments peaked at $11.8 billion in 2008, then dropped off significantly to $6.8 billion in 2009, but thanks to strong growth during the last quarters of in 2010, the year ended with $8.8 billion in total investment (Bloomberg New Energy Finance).
Until the second half of 2010, venture capital (VC) funds had difficulty raising money, and since few companies were sold or had IPOs during the depths of the recession, they weren't able to collect returns, resulting in many fewer new investments. Instead, VCs made follow-on investment rounds in their portfolio companies aimed at keeping them alive during difficult times. They also piggybacked on U.S. government grants and loan guarantees associated with the Stimulus Bill, which skewed investments into more mature cleantech companies.
Deals Flowing Again
But in December 2010 there were some major deals: Abound Solar (thin-film) raised $110 million; Opower (energy management software) raised $50 million, and France's Europlasma (waste to energy) raised EUR 25 million.
In the early days of 2011, VCs have already made some important investments, boosting optimism for the year. In the US, Coda Automotive (electric vehicles) raised $76 million, SoloPower (thin-film solar) raised $51.6 million, Oteros (cellulosic ethanol) raised $22 million, and Lincoln Renewable (wind and solar project developer) raised $14 million.
And smaller, earlier stage companies are finding investors again. The average investment size is hovering around $12 million, according to Kachan & Co., a cleantech analysis and consulting firm. That's still a high figure, beating average round sizes for US biotech ($8.7M), medical devices ($7M) and software ($5M) companies, based on U.S. National Venture Capital Association data.
IPOs and mergers and acquisitions (M&A) are also up in recent months.
The drivers of cleantech remain in tact and will be felt more acutely this year: resource scarcity around oil, rare earth elements, water and commodities generally; the need for energy independence, greater efficiency, and climate change.
"We believe continued growth in Asia and the ongoing push for resource efficiency will make 2011 a record year for cleantech innovation financing," said Sheeraz Haji, CEO of Cleantech Group.
Dozens of venture capital funds have been announced in the past month, including the NER300 Fund in Europe ($12.4 billion, China's Hony Capital $1.5 billion fund, and another $500 million from the California Public Employees Retirement System (CalPERS).
Energy Efficiency Shines
As in 2010, Efficiency, which includes smart grid, will be the dominant investment sector this year, as investors seek less capital intensive deals. Rising commodity prices will also benefit companies that recover and recycle materials such as steel and precious metals. The other continuing theme is China, the largest, fastest market for cleantech. Companies that seek investments need to have traction in China.
Although efficiency was the most popular sector last year with 151 deals, solar received the highest dollar amounts (24%) on 117 deals, followed by Transportation (17%), and Energy Efficiency (14%).
Oil prices are expected to rise in 2011, which would benefit renewables. Kachan predicts a rise in "drop-in" biofuels, employing bacteria or yeast to make chemically similar diesel, jet fuel, butanol and bio natural gas that can simply be dropped into current infrastructure.
Increasing Role of Corporations
With the largest companies worldwide sitting on more than $3 trillion in cash, they are increasingly participating as clean technology investors and acquirers. In recent weeks, General Electric (NYSE: GE) invested $200 million in a handful of companies and plans to double energy-related R&D to $2 billion a year over the next five years.
