Green-tech venture investing cools off in 2009

Green tech is still attracting billions of dollars a year, but the amount of money has shrunk significantly as investors began to focus on start-ups with the most potential.

Venture capitalists are still gung-ho on green technologies, but they are getting choosier.

The amount of venture capital that went toward green-technology companies fell to $4.85 billion in 2009, compared to $7.6 billion in 2008, according to numbers published on Wednesday by Greentech Media. The number of deals was up slightly from 350 in 2008 to 356 this year.

In a statement, venture capitalists cast the numbers in a positive light, saying that the number of deals has increased and the quality of entrepreneurs working in the area is improving.

But even with billions of government stimulus dollars spent on energy, the economic downturn has clearly had an impact on the overall sector. Venture capitalists cut off funding for at least two companies in 2009--algae fuel company Greenfuel Technologies and battery company Imara, which both failed to generate significant revenues.

Even with the drop-off in overall spending, there are signs that young energy-related companies are confident enough to test the waters and go public. Battery maker A123 Systems went public earlier this year. Meanwhile, solar module manufacturer Solyndra filed to go public earlier in December and on Tuesday, biofuel company Codexis also filed papers to go public.

Greentech Media analyst Eric Wesoff predicts that there will be a wave of IPOs in green tech as well as more mergers and acquisitions, particularly in the crowded solar market.

In terms of technologies, solar continues to garner the most attention, having brought in $1.4 billion with 84 deals in 2009. Biofuels, another capital-intensive area, received $975 million in 44 deals.

After that, Greentech Media said the next three segments to attract money were energy efficiency and the smart grid; automotive; and batteries, fuel cells, and storage.

Wesoff noted that there is a return toward early-stage financing, a model traditionally suited for venture capital funds. There remains, though, the ongoing challenge of borrowing money to finance expansion for green-tech companies, such as building a manufacturing facility.

Peter Nieh, the managing director of Lightspeed's clean-tech practice, predicted that there will be more money available for expansion in 2010 but investors will remain cautious and focus on companies with the most potential. "We expect a larger share of dollars to go into emerging leaders and high-potential portfolio companies, as the number of new companies funded in first-time investments grows more moderately," Nieh wrote.

 

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