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U.S. green-tech hot spots go coast to coast

Investments in green-tech start-ups are going through the roof. Which regions in the U.S. are in the lead? Photos: Green tech from coast to coast

The IT revolution sparked on the East and West Coasts of the United States and spread from there. But in green tech, the heartland got an early invitation.

Over the last three years, an avalanche of venture capital has flowed into start-ups developing technology to use natural resources more efficiently. Incumbent fuel producers and energy utilities are also investing in alternative fuels and power sources.

Most of the new company creation is rooted in the traditional financial investment centers in Silicon Valley and the Northeast U.S.

But the middle of the country is playing a very significant role in bringing more technical innovation to energy.

Refineries to make biofuels are being built in states where corn and soybeans are turned into transportation fuels ethanol and biodiesel. Meanwhile, universities around the country are spinning out energy-related companies in response to the growing interest in clean tech.

Where is the most activity? Tracking the regions with the most academic institutions offers some clues. But if you follow the money, it's not very hard to draw a map of green-tech activity. Here's a rundown of the top five green-tech areas in the U.S. based on venture investments.

Silicon Valley
The Silicon Valley is the top spot, by far, for a host of companies that do everything from solar electric power to green building materials.

That's because many venture funds, which typically invest in IT and biotech, have added a clean-tech practice over the past two years, adding to the existing funds that specialize in energy and materials.

The Valley also has a lot of entrepreneurial and technical talent. Many people are trying to transition from sectors in IT, such as chip manufacturing, to areas in the clean-tech industry, such as solar.

Along with the Silicon Valley money comes a heavy dose of promotion--something that's a mainstay in the hype-filled Internet industry. Some people are already warning that green-tech technologies may not deliver as promised and that late-arriving investors will be disappointed.

"As has been demonstrated in the IT and life science arenas, investing in new technologies can be wrought with pitfalls and is not for the inexperienced or the faint of heart," said Mark Heesen, president of the North American Venture Capital Association in a recent report. "Short-term 'tourists' should steer clear."

Despite those concerns, Silicon Valley is poised to generate some of the most successful green-tech companies based on volume alone.

During the first nine months of 2007, California was home to 68 clean-tech investments, according to the NVCA. That's nearly half the number of all investments made during that period and more than 40 percent of the $1.7 billion total.

Tesla Motors, which is making an all-electric sports car, is perhaps the most high-profile clean-tech company. Several other companies, including solar thermal company Austra, electricity demand management service provider Fat Spaniel, and solar cell manufacturer Nanosolar, among many others, have set up shop in the Valley. And don't forget Google, which last month said it intends to invest millions in clean-energy companies.

Massachusetts was second in the first nine months of 2007 with 11 deals totaling $292 million.

The strong showing by the Bay State was helped by $115 million invested in GreatPoint Energy, a Cambridge-based start-up that has developed a process for converting coal and biomass into natural gas.

The Boston area benefits from several universities and a workforce with technical skills. The Massachusetts Institute of Technology, in particular, has sought to become a leader in energy with a campuswide initiative to spur innovation. It also co-sponsors an energy entrepreneur contest.

Texas netted 149 million in clean-tech venture dollars in the first nine months of this year, with more than half of that going to Austin-based HelioVolt, a company that is building solar electric cells using CIGS (copper-indium-germanium-selenide), an alternative material to silicon.

The Austin area is the hotbed of activity for Texas clean-tech start-ups, where there is a University of Texas-linked Clean Tech Incubator to foster development of new companies.

Austin benefits from the advocacy of Mayor Will Winn who is pushing for mass transit, a in conjunction with municipally owned Austin Energy, and plug-in hybrid stations. "You tell people (they) get to drive around on West Texas wind, not Middle East oil, and it resonates with a broader spectrum of people," Winn says.

Texas has the fastest-growing wind industry in the U.S., according to the American Wind Energy Association. And its strong ties to the gas and oil industries make it a natural place to test material technologies to improve refineries and exploration.

Washington State is right behind Massachusetts in the number of deals thus far this year with 10, although it ranked fourth in total dollars invested for the first nine months of the year.

Although it's in a different industry, Microsoft's heavy presence in the Seattle area could be helping boost the creation of green companies.

Former Microsofties, who either cashed out or simply moved on, have founded green-tech companies. Perhaps the most successful Microsoft veteran so far is Martin Tobias, CEO of biodiesel maker Imperium Renewables.

Technology to make IT more efficient is attracting former IT people. Seattle-based Verdiem, a company that makes power management software to reduce PC power consumption, has many veteran IT managers and board members.

Everywhere else
The rest of the country is the fifth green-tech hotspot.

Who knew that Boise State University had a lab devoted to technology that converts kinetic energy, or motion, into electricity? This research may have gone on for years in obscurity, but because of growing interest in alternative forms of energy, a company was formed--M2E Power--to commercialize the battery technology.

Similarly, Novomer was spun out of Cornell University in upstate New York to make biodegradable plastic using carbon dioxide as a feedstock.

And in the world of biofuels, the U.S. agriculture states are playing a huge role in the run-up of corn ethanol production.

As plant wastes, such as corn cobs and wood chips, become viable sources to make ethanol, states with agricultural and forestry industries are trying to get a toe-hold in the emerging industry.

Two cellulosic ethanol companies--Range Fuels and Mascoma--have announced plans to build plants that use wood chips to make ethanol in Georgia and New York.

There's another thing the middle of the U.S. has a lot of: coal. The biggest reserves of coal are in the Midwest and plains states, according to the Energy Information Administration.

One of the most important technologies for reducing greenhouse gas emissions is carbon capture and sequestration, by which large amounts of carbon dioxide are either pumped in underground geological formations or in emptied ocean gas wells.

In a study earlier this year, the Massachusetts Institute of Technology recommended construction of coal-fired power plants that include machinery to sequester carbon dioxide on site.

One of the first locations to try out this technology is in Texas where, alongside a booming wind industry, more coal plants are being proposed.

The U.S. is outpacing Europe in terms of venture dollars invested. According to the Cleantech Network, North American venture capitalists invested almost three times as much as their European counterparts in the third quarter of this year.