Between all the failed deals, scuttled IPO’s and continued uncertainty concerning government subsidies and corporate acquisitions, 2012 may go down as a particularly difficult year for investors in clean technology. But even with all the bad news, many profitable deals still succeeded, says Sheeraz Haji, CEO of Cleantech Group.
The setbacks of 2012 may simply have set the stage for turnaround this year, Haji during a recent webinar presenting his company’s fourth quarter 2012 Investment Monitor report. “I’m quite optimistic that the last few years have built some foundations” for a more profitable 2013, Haji said.
One foundation is the growing realization that Big Data has a role to play in agriculture, which grew by 22 percent in 2012, the Cleantech Group found. The success of Solum, a soil monitoring and data analytics company that received $17 million in investor funding this summer, and which we at CleanTechIQ profiled recently, could mark the beginning of an entirely new business segment, Haji said.
“There’s a real awareness that the world of agriculture has not benefitted from data analytics,” Haji said. “The biggest growth is definitely in agriculture, and this is a trend we think is strong an we think will continue into 2013 and beyond.”
Other observers agree.
“Agriculture tech will be one of the top-three cleantech investment segments of the year,” Andrew Haughian, a partner at Pangaea Ventures, said in a recent blog post. “(T)he VC checkbook will be wide open in 2013.”
More growth can be found in companies specializing in water and wastewater, especially as corporate investors see the value in bringing new efficiencies to older industrial processes. One example of this trend, Haji said, was the decision by BASF to lead a $40-million investment in NanoH20, a company that sells reverse osmosis membranes to desalinate seawater.
“A lot of this is driven by big industrial markets like mining, oil and natural gas,” some of which use 7 barrels of water to produce a single barrel of finished product. “These companies that are really aware of the need to become more efficient in their water use.”
The BASF deal was emblematic of other trends in the cleantech space:
– The new emphasis on capital efficiency and smaller deals. Gone are the days when venture capitalists fund utility-sized energy solutions, with all the attendant risks of technology and regulatory costs plus lots of money at stake. Instead, investors are looking for smaller deals involving more established technologies. This helps to explain recent interest in cleanweb companies that use data and relatively cheap software solutions to leverage environmental change and more immediate investor returns.
“Venture capitalists and others have gotten burned from big capital investments, so they’re looking at more capital efficient deals,” Haji said. “With cleanweb, those companies are hot and get funded quickly,” Haji said.
– Energy Efficiency makes a play. Haji likes the prospects of companies focused on improving energy efficiency, an opinion shared by Wal van Lierop, president and chief executive of Chrysalix Energy Venture Capital.
“As many run for the hills when they hear “clean-tech,” we’re actually committing further to game-changing clean technologies around the world,” van Lierop told the Wall Street Journal recently, “but with a heavier focus on cost-saving, energy-efficiency solutions that solve the biggest pain points for heavy industry.
– Corporates play smaller – but still important – role.
In can be difficult to identify specific trends regarding corporate investors, Haji said. Many global companies have announced the opening of new offices focused on innovation in Silicon Valley in recent years, for example, but their actual market involvement remains largely steady at about 20 percent of all deals.
“Most big companies are conservative beasts,” Haji explained.
But in hard times, backing from corporate investors becomes increasingly important, Haji said. He pointed to the example of MiaSole, whose sale in September for a paltry $30 million was seen partly as a result of the company failing to win corporate backing.
“There’s no doubt that startups and investors see the importance of corporates for their brands and their tech validation,” Haji said. “Corporate investors are a form of insurance when times are tough.”
– Spread the risk. The partnership between GE, ConocoPhlips and NRG may be the beginning of a trend in which investors, especially large corporate players, join together in different types of investment partnerships to spread the risk around. “That’s an interesting question of whether that will be more of a trend,” Haji said.
Despite the areas of opportunity, the overall picture for cleantech was grim for much of 2012. The total number of deals in the sector dropped nearly 33 percent, to $6.46 billion, from the previous year. The average deal was $10.9 million, almost $4 million smaller than 2011. That activity was highly centered in the U.S., and especially in California
Those trends may well continue, says Rob Day, a partner with Black Coral Capital. “U.S. cleantech deal counts will be flat in 2013…and dollar amounts will be down,” Day predicted in a recent blog post.