Cleantech investment drops but stimulus funds soar in 1Q09

Venture investment in the cleantech sector worldwide dropped 41 percent during 1Q09, compared to the previous quarter, according to findings released today by the Cleantech Group in cooperation with Deloitte.

And while the $1 billion raised across 82 companies during the quarter ending March 31, 2009 is 48 percent less than the amount raised in the same period last year, according to the report, it's not cause for surprise, say researchers.

“We knew the numbers were coming down. Capital markets overall have dropped the past two quarters and cleantech as a subset is not immune to that,” said Brian Fan, Senior Director of Research, Cleantech Group. Fan also noted there were no major technological trends this quarter and the deal size was smaller than normal.

“We didn’t record a single $100 million deal. That’s very unusual. We haven’t seen that for several years.” (see More deals fewer dollars for cleantech in '09?)

Venture investing decreased in recent months, but governments representing nearly a dozen countries are now backing clean technologies through stimulus packages, loan guarantees and tax incentives (see Germany, U.S., Australia inject stimulus spending into cleantech).

A new report co-authored by economist Lord Nicholas Stern to be presented at the G20 Summit in London later this week estimates that almost $400 billion of roughly USD $2.6 trillion in economic stimulus allocations announced so far by G20 nations are earmarked for clean technologies such as renewable energy, improved electrical grids and cleaner cars.

Utilities and corporations are also stepping in to bankroll more mature companies.

“Governments are not the only significant new investors in cleantech… Utilities are also stepping up to fill the funding void and making equity investments in companies,” said Scott Smith, U.S. Leader of CleanTech for Deloitte.

“Investment plans range from building and operating solar and wind systems to financing third party, shovel-ready projects. These moves underscore cleantech’s emergence as a significant and maturing market that will remain highly relevant – both during and following the economic downturn.”

Indeed, it may be that cleantech represents a continued growth area for VCs as well. The global cleantech sector pulled in a whopping $8.4 billion in venture capital investment in 2008, a 38 percent increase from 2007 totals, marking the seventh straight year of growth (see Record 2008 for cleantech with $8.4B in investments).

In contrast, total venture capital investment fell 8 percent in dollar volume and 4 percent in deal volume in 2008, according to the MoneyTree Report by PricewaterhouseCoopers and the U.S. National Venture Capital Association.

The MoneyTree Report has not yet published 1Q numbers to put the cleantech sector numbers for the quarter in context.

Despite the venture funding slowdown, there were still bright spots.

During the first quarter solar companies again garnered the most attention, capturing $346 million, or more then one-third of the quarter’s total venture investment. Norsun, a Norwegian polysilicon producer, raised the most in a $72 million round led by Good Energies.

Biofuels raised $96 million, followed by the advanced batteries and electric vehicle subsectors, which raised $94 million and $78 million respectively.

M&A activity was down, with an estimated 111 transactions in 1Q09, of which totals were disclosed for 25 transactions totaling $3 billion. This is down 42 percent from the previous quarter, which logged 134 M&A transactions, of which 45 were disclosed totaling $4.8 billion.

Cleantech Group recorded four cleantech IPOS in 1Q09, three in China and one in Switzerland. The largest deal was China Singyes Solar Technologies Holdings Ltd, a solar service provider, which raised $8.1 million on the Hong Kong Futures Exchange.

North America accounted for 68 percent of the 1Q09 investment total, while Europe and Israel accounted for 28 percent, China for 2 percent and India for 1 percent.

Some venture capitalists say the recent slowdown has allowed valuations to come down to more manageable levels and allow them to put capital to better use.

“Good companies continue to get financed even in these difficult months. There is still a lot of appetite,” said Erik Straser, a general partner with Mohr Davidow Ventures. Straser added that although new companies are getting funded investors are “looking to support existing companies and follow them through.”

The Cleantech Group has been tracking the sector since 1999 and provides research, financial services and networking events around the world. The group also publishes this Web site.

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