VCs pin hopes on green-tech 'exits'

Green-tech sectors--solar, alternative fuels, auto, and wind--are expected to get more money from venture capitalists in the coming year, with hopes of healthy IPOs in 2010.

Venture capital investors have high hopes for green-tech companies. Not only do they expect clean-tech firms to garner the most attention in the coming year, but they also see them reviving the anemic market for initial public offerings (IPOs).

KPMG is expected on Tuesday to publish results of a survey of almost 300 investors and entrepreneurs. Almost 80 percent thought that IPO activity would start to turn around in 2010 and continue in the following years.

Green-technology ventures are favored to lead the way, followed by mobile and digital entertainment firms, according to the survey.

However, 12 percent of respondents said they didn't think IPO activity will reach historic levels ever again.

With rising fuel costs, sectors within green tech--alternative fuels, solar power, auto, and wind--are expected to receive more money, with 70 percent of respondents expecting a 10 percent increase or more in 2009.

Successful IPOs are crucial to the burgeoning green-technology investment sector, which has seen a sharp increase in venture investing over the past four years.

Investment in clean tech continues to rise. This chart shows the correlation with rising oil prices. MoneyTree report from PricewaterhouseCoopers.

There have been a number stock market entrances already from solar and energy-efficiency companies. But industry watchers say that successful "exits"--either through an IPO or acquisition--are important if investors are going to keep funding energy-technology ventures.

One challenge is that energy and related sectors are significantly different from IT or biotech, which have traditionally been venture funded.

In particular, many energy enterprises require much more capital to build and test their products, more than what most venture firms are prepared to do.

In a speech at the MIT Energy Conference earlier this year, Kleiner Perkins Caufield & Byers partner John Doerr noted that Google required $25 million before it went public. By contrast, Kleiner-funded fuel cell company Bloom Energy has already gone through $250 million and is still developing its product.

To address that situation, Kleiner Perkins raised a $500 million fund for financing later-stage energy ventures looking to commercialize their technology.

Private equity firms are also investing in clean energy ventures, although they typically do not have the same appetite for technology risk that venture capital firms do.

 

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