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Green-tech investment dollars plummet

Venture capital investing in green technology slides for the second straight quarter, but investors remain positive on the outlook.

After a multi-year run, venture investing in green tech tumbled for the second straight quarter, a victim of a contracting economy and inflated expectations.

The Cleantech Group and Deloitte on Wednesday said that global venture capital in green tech dropped 48 percent in the first quarter this year, compared to the same period last year. The total invested--$1 billion across 82 companies--is a 41 percent decline compared to the fourth quarter of last year.

Venture investing in green tech peaked in the third quarter last year at $2.6 billion and today's investment level is back to where it was two years ago, the Cleantech Group said.

Greentech Media Research issued a report on Wednesday with slightly different numbers but confirming the same downward trend. Greentech Media analyst Eric Wesoff and prominent green-tech venture capitalists said in a statement that despite the drop-off, investors are still bullish on the green-tech sector overall.

"Green-tech VC investing declined year-over-year, not surprising given the economy," said John Doerr, partner at Kleiner Perkins Caufield & Byers. "Still, green tech could be the largest economic opportunity of the 21st century. This level of green VC investment is not enough."

Analysts said that the numbers do reflect a more conservative and disciplined approach to investing in green-tech companies. With the arrival of new investors into green tech over the last four years, many say that some segments were over-invested, notably solar and biofuels.

"Venture funds continue to invest significant sums, albeit at a slower pace and smaller scale than in the past two years," Cleantech Group senior director of research Brian Fan said in a statement.

Fan expects that green-tech companies will seek out "diversified funding sources," which could include large corporate partners and governments. Utilities are also getting more directly involved in financing renewable energy projects.

This year will be marked by consolidation and development while 2010 and 2011 will be the pay-out year for investors, driven by acquisitions or initial public offerings, predicted Wesoff. He said the he tracks investment in the U.S., Europe, and Israel.

Storage is hot
Solar remains the technology area within green tech that garners the most money. Cleantech Group's total of $346 million in solar was about 35 percent of all investment in the quarter, while Greentech Media Research's totals show that 42 percent of the total went to solar deals.

Biofuels continues to be one of the top investment areas while advanced batteries, or energy storage, and electric vehicles are now among the top categories. Demand for storage is being driven by utilities, the automotive sector, and consumer devices.

Smart grid and energy efficiency, meanwhile, are still attracting relatively few investment dollars. But both areas are poised for significant growth from stimulus packages from the U.S. and other governments.

North America garnered 68 percent of investing, with 28 percent going to Europe and Israel, according to the Cleantech Group.