Green-tech venture investing looks for a reboot

Once the hot category, venture investing in clean energy technologies is decidedly mixed, making it tougher for young green-tech businesses to get money to grow.

The amount of venture capital put into green-tech companies plummeted in the second quarter amid talk of investors leaving the sector and the need for start-ups to rework their financing plans.

Ernst & Young earlier this week released the latest venture capital investment dollars, which showed a 44 percent decline compared to the same period last year. Although analysts warned against reading too much into it, the down quarter reflects the growing interest in Internet investing and a choppy environment for green-tech companies to get venture capital to grow.

Solar remains the biggest segment and a big investment in electric vehicle maker Fisker Automotive pushed transportation into the second-largest segment. There's a growing push among venture investors toward efficiency, the third-largest category, because they typically require less capital. Hara Software, for example, raised $25 million.

Despite the drop, Ernst & Young said that the overall investment in the clean-tech category remains solid. Because energy and transportation-related companies require so much capital, one or two deals within a quarter can skew quarterly numbers, noted Jay Spencer, Ernst & Young's director of clean tech for the Americas. The second quarter this year was higher than first, he added

"Over the first half of the year, we are on pace to be consistent and even be up versus the prior year if you do the simple math," Spencer said.

Even if the overall pace stays the same, there are signs some investors are moving on from the energy field, particularly from venture capital firms that have practices in other areas, such as IT and health care.

New England Clean Energy Council president Peter Rothstein said some venture capital firms are scaling down their investments in an Energy Leaders Forum published Wednesday on Mass High Tech. That's a sentiment echoed by investor Rob Day who said he knew a number of venture capitalists who are looking to move on because their firms don't expect to do many green-tech deals. In one example, Eric Fang left the green-tech practice at Kleiner, Perkins, Caufield & Byers after one year although the firm is still active in the area.

Corporate investors are showing more interest in small green-tech companies, making them an increasingly important source of capital and expertise. Meanwhile, government programs to do clean-energy technologies research or invest in infrastructure, such as the electricity grid, could be cut back in the next few years.

There are signs that more specialized investors and focused entrepreneurs are emerging from the big wave of venture investing that happened last decade, said Bilal Zuberi, an investor from General Catalyst in the Energy Leaders Forum piece.

"While the first cycle of clean tech focused on innovations that had been accomplished over many decades, there is more real-time innovation getting commercialized, with founders more closely tuned into industry needs, and solving specific needs," he wrote.

 

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