Monday, November 1, 2010

Ernst & Young on Cleantech Venture Capital: "Q3: Behind the ugly numbers"

Via Greentech:

The kind folks at Ernst & Young sent over their Q3 cleantech venture deal data this morning.  You've probably already seen the headlines, but suffice to say they've confirmed what many have been saying, that Q3 was a pretty big pullback quarter.  They tallied a 55% decline in deal dollars versus Q3 2009, and not only were deals getting smaller on average, but the total number of deals was also down 22%.
Can't say this was a surprise.  As we've been talking about for a while, it's seemed that the deal and dollar totals this year and last have been somewhat propped up by insider rounds.  And also, VCs are themselves running out of money, and it's a brutal time to be fundraising from LPs.  If the VCs don't have money, they have to pull back their check writing.  Plus, it could always be just a temporary thing -- Q1 and Q2 2009 were even lower quarters than this last one, in the E&Y data, and the sector bounced back from that.
But by and large, pretty ugly numbers.
Thought I'd do a quick dive into the actual data and see what might be of particular interest underneath all that.
By far my biggest takeaway is that this was an across-the-board pullback.  It wasn't due to one stage of deal, or one subcategory, falling off the table.
There are degrees of emphasis,of course -- First Round and Second Round deal counts have declined this year while Seed Round and Later Stage deals have kept pretty steady.  But across all stages, average deal sizes are slightly down this year versus where they've been in previous years.
More than just the one quarter's bad news, what's interesting to me is that I see evidence of an ever-increasing shift by investors toward later-stage deals and away from first round investments.  But that's not what drove an overall down Q3, of course, since later stage rounds are typically bigger than earlier stage rounds.  If anything, the longer term trend toward later stage investing probably buffered even worse sector-wide dynamics.

But also in the sectoral breakdown there wasn't any huge shift either.  No big anti-solar movement is evidenced (yet), nor any anti-biofuels shift.  In fact, the area that saw any decline of significance so far this year is "power and efficiency management services".  And that's only because Q4 2009 was such a crowded quarter for such deals (17, versus 10 in the latest quarter)....MORE