Venture capitalists are investing earlier in the lifecycle of cleantech companies, allowing them to do more deals for less money, according to the latest quarterly report published Friday by the Cleantech Group.
Investors are “no longer irrationally exuberant,” according to the Cleantech Group’s Q1 2013 investment monitor, and the new focus on capital efficiency means that “more early stage deals helps explain lower dollars” invested in total. Such interest in early investments could have profound lasting impact, said Greg Neichin, executive vice president of Cleantech Group.
“For those with a long view on the energy and resource business, this is not a bad story,” Neichin said. “The increase in deal count—especially early stage deals—coupled with steady, continuing interest from corporate strategics leaves us entirely confident that there is a strong industry foundation in place.”
Global venture investment in cleantech companies dropped 29 percent to $1.07 billion from the last quarter of 2012 to the first quarter of this year, reaching the lowest level of total investment in the last six years. The average capital round size dropped 21 percent to $6.6 million. But total deal count showed a modest increase to 217, thanks entirely to a 23-percent increase in early stage deals.
Corporates and corporate ventures followed the same trend. While total deal count for both remained stable, the average capital round size dropped 12 percent to $14 million in deals involving corporates. The average for non-corporate rounds was $5 million, a 37-percent decline.
Such mixed interest in cleantech investment may seem quixotic given the fact that the Cleantech Index has risen by over 15 percent since October 2012, beating the S&P 500, which has grown by less than 10 percent.
Performance varied widely by sector. Venture firms completed 24 deals with transportation companies worth $144 million, 18 in water and wastewater and nine in wind. The strongest growth happened in solar, which saw a 36-percent increase over 4Q 2012 with 19 venture deals worth $112 million; and agriculture and forestry, where the 12 deals in the first quarter represented a 50-percent jump over the previous quarter.
The biggest losing sector was energy efficiency, which saw a 37-percent drop in the number of deals from the previous quarter, even though the total of 31 deals worth $156 million kept efficiency as the largest sector in the space.
Major deals included Nest, which raised $80 million from investors including Google Ventures, Kleiner Perkins and Lightspeed; and the $45 million raised by investors VantagePoint, Interwest Partners, Schlumberger and Riverwood Capital in Liquid Robotics. Less famous but still important were deals including the $25-million round for smart transportation company Streetline raised by investors including RockPort Capital Partners, Qualcomm Ventures and Fontinalis Partners.
Interesting venture-backed IPO’s included Asetek, a Danish manufacturer of liquid cooling systems for data centers, which raised $32.9 million with investors including KT Venture Group, Northzone Ventures, Sunstone Capital and D.E. Shaw Group.
One notable merger was Toshiba’s purchase of Consert, a home energy control startup. At $11 million, the acquisition “wasn’t a blockbuster deal in terms of return, but it was a good one for Toshiba demonstrating breadth,” said Neichin.
There was also the deal by Brightpath Caital Partners, Green Capital Partners and Firelake to raise $28 million for solar installation company Sungevity, which reflects larger trends in the solar industry away from manufacturing.
“The state of the solar market in my mind is strong,” Neichin said. “If you’re a manufacturer, it’s not a great time. But if you’re installing or financing panels, the market tends to be pretty good.”
Total investment in North American cleantech firms continued its yearlong decline, from 1.5 trillion in the first quarter of 2012 to $656 billion during the same period this year. That was partly compensated for by the rebound in Asian investment, which hit $107.7 billion last quarter. That included a deal in China and India by International Finance Corporation and one deal in India by Draper Fisher Juvetson, two of the most active players in the region.