Green-tech VCs suffer from social-media 'deal envy'

WELLESLEY, Mass.--Investing in green-technology companies is losing some cachet to the eye-popping valuations of social-media companies, according to an industry follower.

Over the past decade, venture investment in the clean-tech category ballooned to the point where clean-tech deals garnered more money in a quarter than biotech and software in 2009. Now, venture capitalists at firms that invest in both green tech and other areas, such as Internet, are encountering more "deal envy," said Sheeraz Haji, the CEO of market research company the Cleantech Group.

"They hear about how Groupon turned down $6 billion from Google and people think, oh my God, that could have made my career," Haji said today in an interview at the Babson Energy and Environment Conference here. "There's a view that at some diversified funds that it's harder on partners to get deals done."

Investment in green tech dropped off significantly last year in large part because of the recession. But green tech still remains a significant investment category globally. The first-quarter numbers this year, at $2.5 billion globally, appear to be the largest since the Cleantech Group started tracking data in 2002, Haji said.

Haji's comments about greater competition for attention from Internet-related start-ups reflect anecdotes from other investors who say they have seen some cooling of interest. Some venture funds that moved into green tech last decade are also said to have moved out to focus on traditional areas, such as IT and biotech.

At the same time, Haji said that one of the most promising areas for advances in energy and water is in using data more effectively, an area directly related to IT.

For example, RelayRides is a company that allows people to go online and organize car sharing. Collecting and making sense of sensor data on water distribution lines or the electricity grid is another area where IT can make those industries more efficient. A number of solar-installing companies are using the Web and satellite data to streamline the home solar business. "There's a huge opportunity to apply existing technology," Haji said.

Even though social media is capturing more investors' attention, the green-tech start-ups that are coming to investors are more mature, as people better understand the complexities of starting businesses in energy. Even late-stage funding for taking products from demonstration to commercial scale is available, Haji said. "If there's a good product, there's capital available," he said. Also, there are a number of green-tech companies expected to go public in the coming months, offering more incentive for investors in the sector, he added.