Cleantech Venture Capital Homes In On Efficiency

Venture capital firms that focus on cleantech are looking for the next big area to invest in, and they seem to have settled on smart grid, energy storage and other efficiency technologies.

"We are going through a repositioning of cleantech," Wal van Lierop, founder of Chrysalix Energy Venture Capital, told Bloomberg. "The big sectors – solar, wind and LEDs – are in the process of being consolidated. They’re maturing, so they fall out of the cleantech opportunity basket. We now are trying to find the next hot spots."

This shift has been going on for the past couple of years. As investors have been hurt by problems in the solar and wind industries, they’ve been looking for less capital-intensive technologies to support. 

In 2012, investments in privately held renewable energy companies dropped 34% to $5.75 billion – the lowest level in at least six years, according to Bloomberg New Energy Finance.

While solar companies received $1.58 billion, efficiency-oriented technologies received 38% of the total – $2.2 billion.

Now, the focus is on enabling technologies that make it possible for the renewable energy industry to grow, such as energy storage systems and smart grid, which reduce intermittancy.

These are the "richest" new areas, Alan Salzman, CEO of VantagePoint Capital Partners told Bloomberg. Energy storage is an area that has been hugely underserved historically that we think remains hugely interesting," he says.

Some of the companies that have received backing along these lines are in energy management, such as Enbala Power Networks and AlertMe (Chyrsalix); energy storage, such as LightSail Energy (Khosla); energy efficiency audits or software that cuts power consumption, such as Next Step Living and Tendril Networks (VantagePoint).

Venture Capital Losses

Many of cleantech’s biggest losses were backed by venture capital firms, such as Solyndra, which raised $1.2 billion, and A123, with $278 million. Fisker Automotive is another one, which is now considering which company will buy it out.

"With solar, now that the technology is proven, the industry’s biggest challenge is driving down costs, Raj Prabhu, managing partner at Mercom Capital Group, told Bloomberg. That makes solar manufacturers less attract to venture capital firms.

"VCs are really good at finding new technologies but not so good at manufacturing," he says. "They’ve learned that they need to stick to picking technology winners, not building factories. The new money is going downstream to help build markets. The industry is now mainstream."

A handful of solar manufacturers managed to raise funds, such as Stion, but companies like SolarCity are generally more attractive because they benefit greatly from rapidly falling solar prices. On the wind side, an example of a company that raised capital is UpWind Solutions, which services wind farms.   

"We continue to push energy efficiency, which is less capital intensive and allows a company to get into a very big market by improving existing infrastructure rather than having to build a new way of delivering power," Neil Suslak, managing partner with Braemar Energy Ventures, told Bloomberg. "Efficiency and capital-light deals are the flavor of the month."

Braemer recently closed a $300 million venture capital fund.

Vinod Khosla insists that venture capital firms have lost money because they invested in too few areas and those that depend on subsidies – clean energy and advanced battery technology, for example. 

Another area that shined in 2012 was biofuels and biochemicals.

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