Thursday, July 23, 2009

New data show fickle state of clean-tech funding

From MarketWatch:

Commentary: Environment falls out of fashion, big focus on automation

So much for the environment.

That was my read on the most recent quarter of venture-capital data, which to me was indicative about what a sorry state this arm of finance is currently in, especially when it comes to investing in clean-tech companies.

Remember the clean-tech industry? It was lauded as the nation's new growth engine, with thousands of start-up companies forming over the last several years to help develop a more efficient energy infrastructure.

But a check of the last two quarters shows a drastic drop of venture-capital money going into those start-ups. In 2007, investment in clean-tech companies totaled $2.65 billion, and then soared by more than 54% the following year to $4.02 billion.

In the first half of 2009, however, funding fell to $238 million in the first quarter and $274 million in the second quarter, according to the recent PricewaterhouseCoopers MoneyTree Report, for a grand total of $512 million so far this year.

There undoubtedly are many factors at play here, including the state of the economy, government incentives and the unproven nature of many of these technologies. But one comment on the conference call to discuss the recent data was telling about the mindset of some venture capitalists toward clean tech. They also discussed the decline in early stage funding. See story on the MoneyTree data here.

"This is an area where a lot of people got in very fast, such as solar," said Ray Rothrock, a partner with Venrock in the firm's Palo Alto, Calif., office. "The capital intensity of clean tech is starting to be apparent to many people. I think that is part of the explanation for why these numbers are down significantly."

Bottomless pits

In other words, some companies seem to be bottomless pits needing tons of cash. Electric-car maker Tesla Motors might be an example of that. The San Carlos, Calif.-based firm has raised, since its inception, about $700 million, including a recent $465 million low-interest loan from the U.S. Department of Energy to accelerate the production of fuel-efficient electric cars.

Venrock has invested in clean-tech, such as its investment in Transonic Combustion. The Camarillo, Calif.-based start-up is developing a new fuel-injection system for car engines. Developing new automotive technologies in particular is an area of high-cost experimentation.

Transonic, which is mum on the funding it has received, also counts Khosla Ventures, one of the earliest clean-tech VC firms, among its investors. Early on, its founder Vinod Khosla was a proponent of ethanol as an alternative fuel, which since has flamed out....MORE

Although much was made of Khosla's announcement of $1Bil. in new funds, earth2tech's Katie Fehrenbacher hit the right note in the first paragraph of her Tuesday post "Report: Khosla to Launch $1B in New VC Funds":

Cleantech investor and Sun Microsystems co-founder Vinod Khosla has already funneled tens of millions of dollars of his own money into dozens of cleantech startups — many of them biofuel firms — yet has had few, if any, big success stories to date. Many of his investments have been lingering in the capital-needy growth stage of development, like cellulosic ethanol maker Coskata, which recently said it could only build its first commercial plant if it gets help from the U.S. government. But now, according to a report from Forbes, Khosla has finally turned to outside investors to create two new funds, which together are looking to close $1 billion, and which could largely invest in cleantech....