Cleantech investment suffers in Q3 2010

Cleantech companies saw a full 55% drop in funding compared to Q3 2009

With recent reports of hiccups in venture funding in the third quarter of 2010, it comes as no surprise that this has also affected cleantech companies.  What does come as a surprise is that cleantech companies have received less funding in Q3 2010 compared to the same time last year.  Remember last year?  Probably not, because you were likely among the number of people who spent the year in an alcohol-induced haze to avoid seeing exactly how much money you were losing.

Just how much has cleantech funding fallen from Q3 2009?  U.S. venture capital investment in cleantech companies fell to $576.6 million in 53 financing rounds, representing a full 55% decrease in capital and a 22% decrease in deals compared to the same time last year, according to a report released by Ernst & Young LLP, based on Data from Dow Jones VentureSource.  Interestingly, the segment that saw the most activity was Energy Efficiency, with 17 deals and $161.7 million raised, an increase of 21% and 6% respectively.  The largest deal made in the Energy Efficiency segment was $48 million round closed by Smooth-Stone Inc., an Austin, TX.-based developer of low-power data center chips. 

Corporate investment also played a big role in Energy Efficiency this quarter, with Ford announcing last week that it plans to invest $840 million between 2011 and 2013 in the development and manufacturing of fuel-efficient cars.  GE similarly announced plans recently to invest $432 million over the next four years to design and manufacture more energy efficient refrigerators.

Overall, Q3 2010 saw strong corporate engagement with the cleantech sector despite the overall drop in financing.  About 23% of all cleantech VC deals in Q3 2010 included participation from corporate investors, rising from 15% in Q3 2009.

While the Energy Efficiency segment grew, the Energy/Electricity Generation segment didn’t fare as well, with capital investment falling to $203.9 million, a 39% decrease.  The reason for the drop appears to stem from investors’ focus on small, early-stage deals, including two seed rounds, two first rounds, and five second rounds.  Solar companies prevailed in this segment, raising a total of $150.1 million among ten deals, the largest of which was a $65 million round closed by Solaria Corp., a developer of solar photovoltaic solutions based out of Fremont, California.

Other cleantech segments that struggled in this quarter include Industrial Products, which took a 72% nosedive in capital and a 50% drop in financing rounds.

Two cleantech IPOs took place in Q3 2010: Ameresco, a Framingham, Mass.-based energy efficiency and renewable energy company raised $84.8 million, and Emeryville, Calif.-based biofuels developer Amyris Biotechnologies raised $84.8 million.

The regional breakdown is also a little surprising.  California took a big hit this quarter, with deals falling 44% and capital dropping 71% to $295 million.  Massachusetts, by comparison, saw a 50% increase in deals and a 65% increase in capital invested in Q3 2010 compared to the same time last year.

"This quarter reflects the ongoing volatility in cleantech investment that we have observed over the past two years, depending on the presence of the very large transactions we see in cleantech," said Jay Spencer, Ernst & Young LLP's Americas Cleantech Director.  "However, a number factors point to the continuing strength in the US cleantech sector, including growth in Energy Efficiency investments and corporate involvement throughout multiple industries – from utilities to technology to consumer products."

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