Cleantech investing surges 73 percent in Q2 after gloomy Q1

Investment in the cleantech sector leaped 73 percent to $572 million in the second quarter. Financing was distributed across 48 rounds — a full 100 percent increase from the previous quarter, according to new analysis from Ernst & Young based on Dow Jones Venture Source data. These stats defy the basement levels of investment in the sector earlier this year.
That being said, the figures are still down from where they were a year ago. The second quarter of 2008 saw the second-highest amount of cleantech investing ever (a hard act to follow). This year’s Q2 saw 59 percent less money invested across 16 percent fewer deals. The dip from last year can easily be attributed to the downturn in the economy. Many investment firms responded to the contracting liquidity by choosing only later-stage and less-risky startups to back. Most cleantech companies are still in their early days, and involve sizable amounts of risk.
Breaking down the data from the recently-ended quarter provides insight into where the market may be headed in the coming months. The bulk of the money — $157 million — was invested in energy and electricity generation companies. Impressively, this is a 181 percent increase over the preceding quarter. About $148 million of it went to the solar industry. Solar was huge this year — sucking up 26 percent of cleantech financing overall.
Energy efficiency also saw big wins in Q2, with investing jumping 168 percent from Q1 to $152 million. The category included the $30 million investment in consumer energy management company Tendril.
Alternative fuels garnered $53 million, comprised largely of the $40 million sunk into Colorado biofuel company Gevo. Transportation, perhaps the sexiest of the cleantech segments, took in $65 million, including Daimler’s highly-publicized acquisition of a $50 million stake in electric vehicle darling Tesla Motors.
Ernst & Young says the increase in cleantech financing shows a boost of confidence in the sector that had been all but depleted following the downturn — not that firms’ attitudes changed all that much toward early stage vs. later stage startups. The data shows that most investors threw support behind companies in the product shipping stage as opposed to the product development stage. About 65 percent of the deals were with companies in the shipping stage, up from 54 percent in Q1. Product development-stage companies saw only 27 percent of the investment, down from 46 percent in Q1.
Another trend observed in the data is a preference toward funding particular assets or projects. For example, First Wind captured $504 million for a 203.5 megawatt energy-generation development. SunPower also nailed down a large chunk of change for a 1.1 megawatt photovoltaic project in California from Wells Fargo. About $2.9 billion went toward financing cleantech assets in the second quarter — a massive increase from the $307 million earmarked for this purpose in the first quarter.
In addition to increased confidence in cleantech companies’ performance, many investors are betting on the space getting a huge boost from the U.S. Department of Energy — primarily through the stimulus package. Already, the DOE has issued $47 million of these funds to help complete eight smart grid demonstration projects. And many solar, wind, transportation and biofuel startups are awaiting their pieces of the pie. There is activity in this area at the state level as well, with Oregon considering legislation that would make the streets more friendly to electric cars and Michigan providing large tax incentives to battery manufacturers.
With most of the government money scheduled to land in September, it will be interesting to see how much the third quarter number change from the Q2 figures reported her. Even if most companies are left waiting for their money, the anticipation will probably produce substantial changes on its own.