Green-tech venture capital rebounds, but still off highs

After tailing off earlier this year, venture investors are showing far more confidence in green technology in the third quarter, buoyed by government policies and a successful IPO.

The latest data for venture capital in green-tech investing are in and the numbers all point upward, with the category now attracting more money than software or biotech.

Research company Cleantech Group and media company Greentech Media on Wednesday each released third-quarter data for venture capital in green technologies, showing that government stimulus spending and signs of a recovering economy have helped restore confidence in the sector.

Third quarter investing rose to $1.59 billion, representing 134 deals in North America, Europe, China, and India, according to the Cleantech Group. Greentech Media's tally, which covers deals in North America and Europe, came to $1.9 billion in 112 deals.

Green tech has been one of the fastest-growing technology sectors over the past few years, but it now outpaces biotech and software in size as well.

Data from the Cleantech Group and the PWC MoneyTree Report show green tech at 27 percent of venture capital investing, compared to 24 percent for biotech and 18 percent for software.

Although the numbers from the two reports vary slightly based on research methodology, the trend line is clear: up. Venture capital investing, a sign of sentiment toward different technology sectors, dropped significantly earlier this year , then stabilized in the second quarter, according to both companies.

The total amount of money going to green-tech deals has not yet fully recovered to last year's record levels, though. The Cleantech Group said that third quarter 2009 investing is up 10 percent from the previous quarter, but down 42 percent compared to the same period a year ago.

The positive investing news comes just a week after lithium ion battery maker A123 Systems went public , saw its stock soar 50 percent on the first day of trading, and hold steady. There have been few IPOs in green tech, but venture capitalists remain positive that their portfolio companies will be able to go public in the next two years or get bought by a larger company.

Solar remains the area that attracts the most money, boosted nearly by a $200 million investment into a factory for Solyndra's thin-film rooftop solar systems.

In the auto sector, notable deals were an $82.5 million follow-on investment in electric-car maker Tesla Motors and $46 million in electric city car maker Think Global.

The green building area, which covers alternative materials , energy efficiency, and lighting, saw $110 million in the third quarter, driven in large part by $60 million for drywall maker Serious Materials, according to Cleantech Group.

Other sectors considered promising because of government spending include smart-grid technologies --or using IT and networking technology to modernize the electricity grid--and energy storage for vehicles and the power grid.

Greentech Media analyst Eric Wesoff said that there is a marked trend toward early-stage deals .

Even with the upbeat data, there is a growing understanding among venture capital investors that energy and water are significantly different from other technology areas , such as IT. Energy is a highly regulated industry and often requires large amounts of capital to deliver a product to market.

Flagship Ventures investor Jim Matheson said last week that venture capitalists are in a "trough of disillusionment" phase with green tech as they seek to find the right mix of financing and corporate partners and advocate for policies that encourage development of green technologies.

The Senate on Wednesday released an energy and climate bill that proposes mandates for renewable-energy generation and efficiency and a cap-and-trade system to put a price on carbon emissions. These policies are, in general, favored by green-tech companies but passage of a bill this year is expected to be difficult.

 

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