Green investing bounces back from recession

Venture Capital investment in green technology companies has jumped to tie pre-recessionary levels, according to a new report out of Greentech Media. With $1.9 billion spread over 112 deals, this year’s third quarter trounced figures from earlier this year, signaling a stronger than anticipated comeback for the sector, which took a beating during the economic downturn last fall.
To put the recent numbers in context: the second quarter this year saw $1.2 billion distributed across 85 deals, which beat out the first quarters miserable $836 million and 59 deals. This trend of rapid improvement bodes well for cleantech companies in the remainder of the year. Add in battery maker A123Systems’ blockbuster IPO last week, and it’s possible the market’s momentum could lead it to record heights going into 2010. A123 hadn’t even hit profitability and it still closed the day with share prices 50 percent above predicted levels. If that’s not a sign of investor enthusiasm, then nothing is.
The Massachusetts-based battery company may have become the poster child for top-tier cleantech companies in the last several weeks, but solar still dominated third-quarter investing, according to the Greentech Media report. About $575 million (30 percent across 29 deals) of the capital handed out during the quarter went to solar companies. Biofuels came in second at $512 million via 17 deals. That said, investing in companies working toward a cleaner, more efficient Smart Grid have gained ground in just the last three months ($159.7 million over 14 deals this quarter, compared to $101.4 million over 11 deals last quarter) — supporting our claim that the Smart Grid is getting more attention than ever.

The report highlighted several massive deals that gave Q3 the oomph to dig the sector out of the recession once and for all. Among them was the $198 million raised by cylindrical solar panel maker Solyndra from Argonaut Private Equity; the $300 million raised by algae-based biofuel maker Synthetic Genomics from Exxon; the $82.5 million given to electric car darling Tesla Motors (supposedly unsolicited) by Fjord Capital and Daimler; and the recent $60 million given to green construction supplier Serious Materials by Mesirow Capital among others. All of these are very large sums for the green space considering the size of previous deals this year.
Not surprisingly the leading VC firms in cleantech included Khosla Ventures (a devotee of biofuel development), Kleiner Perkins Caufield & Byers (led by green proponents John Doerr and Al Gore), CMEA Capital (backer of Solyndra and biofuel powerhouse Codexis) and Foundation Capital (the firm that rode demand response company EnerNOC’s shares all the way to a lucrative IPO — and may do the same with smart metering provider Silver Spring Networks). At least one of these firms has had a hand in every major green investing deal coming down the pike. Their support is enough to immediately anoint any company as “one to watch.” Take environmental footprint tracking software maker Hara, for example. Just $6 million from Kleiner Perkins kept it in the spotlight for weeks after its June launch, and almost every story about it since has mentioned the firm in the first or second paragraph.
Another fact worth mentioning from the report is that early-stage cleantech companies are having more success raising money. In both Q1 and Q2, VCs seemed to freeze up, choosing either not to sink money into the space (which is viewed as relatively risky), or to support only revenue-generating late-stage enterprises that had less of a chance of tanking. The fact that 35 of the deals made in Q3 involved early-stage startups is a positive sign for not only cleantech, but investors themselves, who seem to have enough liquidity now to stop playing it quite so safe.
VentureBeat is hosting GreenBeat, the seminal executive conference on the Smart Grid, on Nov. 18-19, featuring keynotes from Nobel Prize winner Al Gore and Kleiner Perkins’ John Doerr. Get your early-bird tickets for $495 before Sept. 30 at GreenBeat2009.com.