It’s been a tumultuous year and a half for clean technology investors. A series of reports and studies found that venture investment in cleantech startups dropped significantly in 2012 as traditional investors including insurance companies, pensions, and university endowments pulled out. That caused big failures at Hudson Clean Energy Partners and VantagePoint Partners, which admitted defeat on $2.75 billion in combined fundraising as investor interest flagged.
Venture firms responded by raising smaller funds and refocusing on capital-light startups. Deal volume dropped 25 percent in the first quarter of 2013 from the same period in 2012, and average deal size plummeted 66 percent to $2 million, according to PwC MoneyTree.
Cleantech was not abandoned by, however. On the contrary, many recruited fresh investors including corporations, sovereign wealth funds, family offices, and new Asian investors. They also innovated business models such as Garage Technology Ventures, Braemar Energy, and the Westly Group, all of which brought in new levels of corporate participation.
“As long as the traditional venture firms remain constrained, it’s a great time for corporates with cash to do some deals,” says Sheeraz Haji, CEO of Cleantech Group. “Corporates are really interested in startups, and startups want corporates to participate. The interest is really high on both sides.”
Not content to invest in outside funds, more corporations including Shell, E.ON and Google are launching their own venture capital units. Bringing the venture model in-house allows corporations to pursue innovations “too disruptive to an incumbent’s core business for it to pursue internally,” says Paul Straub, director of Claremont Creek Ventures.
CleantechIQ has compiled a list of the biggest changes in cleantech funds. The capitulations and fresh starts gathered here show an industry that is growing leaner, more diversified, and perhaps more realistic about potential risks and rewards.
Venture investments in cleantech companies have been in free fall. Diminished interest from traditional investors including insurance firms and pensions forced VC’s to capitulate, downsize or shift away from cleantech, including:
– Hudson Energy Partners hit a wall. After raising a first round in 2009 worth $1.02 billion, Hudson Clean Energy Partners announced a $1.5 billion goal this year. That effort failed and the firm began downsizing its large team.
– VantagePoint Capital Partners crashed. After finding little interest among potential investors, the firm cancelled fundraising for a $1.25 billion fund, which was to target capital-heavy industries including energy storage, grid-scale efficiency, and electric vehicles, plus sectors hammered by global competition such as solar manufacturing.
– Kleiner Perkins Caufield & Byers, once a Silicon Valley darling has taken it on the chin lately, due partly to its big bets on cleantech firms including Fisker Automotive. The firm dissolved its dedicated cleantech team while refocusing recruiting efforts to bulk up its general IT expertise. Meanwhile Bill Joy and Ray Lane, general partners who led three funding rounds with significant spending on cleantech companies, became partners emeritus.
– Draper Fisher Jurvetson’s investment in cleantech firms dropped 37 percent last year, as the firm’s emphasis “shifted somewhat toward mobile, cloud and consumer web,” said managing director Don Wood.
– Mohr Davidow is shrinking its cleantech focus. The blue-chip VC firm folded its cleantech group into its larger IT vertical. In the restructuring, the firm’s cleantech experts including Erik Straser and Marianne Wu failed to make the cut to become general partner, and were named “investment professionals” instead. Others left the firm including Sven Strohband for Khosla Ventures, and Will Coleman.
– Other departures, including Jason Matlof leaving as a partner of Battery Ventures and Ullas Naik from Globespan Capital Partners, left both firms with diminished cleantech groups. Another venture firm, Redpoint Ventures, also moved away from investing in clean technology.
Some big research studies and a big fraud case also cast a pall on the industry, including:
– For CalPERS, “L” is for “Lose.” Joseph A. Dear, chief investment officer for California Public Employees’ Retirement System, dropped a bomb on cleantech VC’s in March when he announced the nation’s largest pension fund lost 9.8 percent on its $900-million investment in cleantech companies. “We have dialed back,” Dear said.
– Advanced Equities, a Chicago-based investment group that had teamed with established firms including Kleiner Perkins and NEA, shut down its broker–dealer operations and paid $1 million in fines after settling charges with the Securities and Exchange Commission that the company misled investors while raising funds for alternative energy startups.
Cleantech venture activity may be down, but it definitely is not out. Here are some of the biggest recent moves, starting with VC’s attracting new investors as some traditional ones bow out:
– Steve Westly, founder of venture firm The Westly Group, may be “more bullish than ever” on cleantech, but his approach to raising his latest $160 million fund shows such confidence requires resourcefulness. Absent were university endowments and pension funds, replaced by some giant strategic investors including German utility E.ON, Citigroup, and South Korea’s SK Group.
– Attracting funds from family offices as well as insurance companies, banks and mutual funds, SJF Ventures announced it successfully raised $90 million for its third cleantech fund, three times as large as its prior fund.
Corporations accelerated the pace of their energy venture efforts, including:
– Petro giant Shell announced its new venture capital unit will invest “several hundred million dollars” in new tech companies in the coming years. Priorities including exploiting future energy technologies and boosting efficiency through better water treatment, gas production and geophysical imaging could include big cleantech opportunities.
– After staking territory as a major venture presence with Google Ventures, Google launched a second VC fund called Google Capital to invest in later-stage startups.
– Oakland, California-based Claremont Creek Ventures also touted its ability to recruit strategic partners, since “8 of our past 10 energy tech investments have included a corporate partner,” director Paul Straub says.
– German utility E.ON announced it is creating a new venture capital unit focused on investing in distributed and smart energy solutions.
– As traditional venture firms continued to back away from cleantech startups, major corporate strategics filled in some of the gap, including investment activity by Siemens, Schneider Electric, ABB, American Electric Power and General Electric.
Others tried to invent new venture business models. These included:
– Garage Technology Ventures launched new type of strategic venture investment fund that partners with corporations who are seeking to outsource their cleantech innovation investments. The new fund is not set up in the traditional venture fund structure, and Garage will be paid a management fee “with an opportunity for upside” for co-managing the fund.
-Greenstart, which began as a cleantech accelerator in San Francisco, announced it is transitioning to become a small venture firm that also will serve as an in-house design company for its startups.
– Energy Foundry, a cleantech venture firm created by the Illinois state government and funded with $22.5 million from utilities including Commonwealth Edison Co. and Ameren Illinois, opened in April. The effort’s managing director is Sara Hochman, who previously worked in GE’s renewable energy division.
A number of VC’s took big swings at the fences:
– LUX Capital turned against the herd. The firm raised $245 million (topping its $200-million goal) for capital-intensive startups in energy, science, and health care.
– Goldman Sachs announced a goal of raising $40 billion in cleantech investments over the next decade across sectors including wind, solar, biofuels, hydro, energy efficiency, biomass, energy storage, LEDs and transmission. Goldman has a history of exceeding projections in this area; the company pledged in 2005 to raise $1 billion, but it actually raised $24 billion, including $4 billion of its own money.
– Andreesseen Horowitz continues to bet big on cleanweb, as well as other types of web- and app-based efficiency companies including FlightCar, FarmLogs, AirBnB, and $60 million on Zimride/Lyft.
Still others announced simply positive fund creation moves:
– EnerTech Capital, which focuses on later-stage investments, received $20 million from BDC Venture Capital, part of its larger strategy to raise a $150-million fund and invest in “12 to 17” companies.
– Terra Venture Partners announced it has raised $20 million towards a fund it hopes will reach $50 million, with a mixture of investments in software, energy and water.
– BDC Venture Capital, a Canadian firm, announced it will invest $100 million in Canadian tech firms focused on scalable energy and efficiency.
– Wheatsheaf Investments, a firm owned by one of Britain’s richest men (who also owns the utterly ridiculous title of “His Grace Major-General Gerald Cavendish Grosvenor, 6th Duke of Westminster”) entered the cleantech investing space by joining in a $13-million funding of green fertilizer company Osatra Nutirent Recovery Technologies.