The Global Cleantech 100 list released last month revealed that more than half the companies selected were in the energy efficiency category. This year’s trend in the top 100 was also reflected in the Cleantech Group’s third quarter results this year. VCs invested $1.4bn, 16.8% of which was spent on energy efficiency investments across 33 deals. Transportation took second place at 11.4%, largely because of the $258m invested in taxi service Uber, a deal backed by Google Ventures, TPG Capital and Benchmark Capital.
Richard Youngman, managing director for Europe & Asia at the Cleantech Group, said: “One of the things that’s very clear to us is right now is a relatively low tolerance or a much stronger preference towards companies that are quicker to market who are quicker to revenue, who are perhaps not as capital intensive as some of the companies who are were founded 5-10 years ago.
“These companies are spread across all the different categories and that has to be the biggest change over five years of doing this. In the solar world we see much fewer companies in the 100 and of the companies that are there, they are essentially downstream finance and service providers as opposed to hardcore technology and manufacturers.
“Energy efficiency has been a theme that has grown gradually over 5 years but within that there are multiple changes of exactly the types of businesses within that catchall as well.”
Youngman also told a panel discussion at the Global Cleantech 100 Summit in Washington DC that half the companies on the list were new entrants, the highest number ever, as a result of the 3rd wave of innovation from clean energy investments made after 2009. Cleantech revenues from cleantech product sales were also expected to be in the region of $6bn this year, he said.
In the energy efficiency category, companies such as heat recovery specialist Alphabet Energy, smart grid company Gridium and LED company Lucibel were new to the list. While energy management services companies Opower, Tendril and Nexant kept their places in the top 100, consolidating the demand for data services and software to manage energy efficiency.
Rob Day, partner at venture investment firm Black Coral Capital, noted that there were 51 new companies on the Cleantech Group’s list this year, 20 of them energy efficiency or smart grid.
“That really speaks to the vagaries of what’s in favor and what’s in fashion at the moment,” he said. “It’s certainly not surprising to ever see that VCs are herd animals. It’s a funny thing that happens when a sector starts to fall out of favor and we stop celebrating hype and stop celebrating large capital raises and start celebrating results.”
Global sales of cleantech product portfolios have been growing 10% a year set to be on a par with sales in consumer electronics and oil and gas equipment by 2015, the Cleantech Group also noted.
“In general, what I saw, was the healthy evolution of the list towards focusing more on companies that are revenue stage even if they haven’t got a lot of attention for raising a lot of money,” said Day.
“I was surprised to see energy storage fall lower on the list given conversations with my peers out there and the investing landscape and seeing where the activity is. I continue to see that as a strong sought after sector.”
Stephan Dolezalek, managing director at VantagePoint Capital Partners, said that the top 100 list this year clearly demonstrated a shift towards consumer-focused products, which would give a faster route to market and revenue.
“Early on, we were focused on utility on large markets – the oil players, the chemical players, and we’re now seeing a shift that says what is the role of the consumer. Why did Tesla succeed? Because it intensely understood what the consumer really wanted in an EV.
“It’s not being a technology innovator, it’s being a solutions provider. Even if you’re building it around a technological innovation, one could argue that Tesla is built on some phenomenal tech innovation battery controls, but they provided a superior solution to other cars.”
Grant Allen, senior vice president at ABB Technology Ventures, said that only consumer models allowed for a rapid iterative process.
“We want to make sure that test, innovate, iterate cycle is as short as possible,” he said. “Consumer models you can iterate very quickly. That’s not something we have seen in hard industrial scale technology. We need to make sure it’s going to be out there in the market place for 30 years.”
Allen also said that ABB Tech Ventures was plugging a gap with corporate seed funding, a position in the technology cycle usually performed by VCs.
“We’ve seen VCs tail off in the availability of series A capital, but I see a much more sophisticated relationship with the corporates including us,” he said. “We’re having conversations earlier and we’re adapting to that need. We’ve written checks as small as $250,000 and I’m going to committee in a month for $100,000 seed investment.” He also mentioned that he is expanding the firm’s relationships with universities and labs to take stakes in very early stage opportunities.
Grant also noted the expanding categorization of “cleantech”.
“You have these new companies that aren’t even cleantech per se, they are resource allocation and collaborative consumption companies like Relay Rides and AirB&B. If we’re going to call that cleantech we might as well call Skype cleantech because it allows you to not travel on a plane to see your colleagues.
“We’re not investing in those companies. You see the GoogleVentures of the world coming into that [energy space].”
Dolezalek of VantagePoint said: “When we’re not doing so well, we’re looking to make ourselves a broader category, to rename ourselves. When we’re succeeding we’re very proud to be what we are. The reality is, this is a very broad market.”
In solar, the shift downstream continued to businesses that provide third party financing such as Clean Power Finance, Sungevity and Sunrun. Two thirds of all solar PV capacity in place worldwide has been installed since January 2011, a period in which module prices have fallen by more than 60%, boosting the economics of solar installations. Capacity is expected to double in the next 2-2.5 years according to Global Trends in Renewable Energy Investment 2013, a report from Frankfurt School-UNEP Centre/BNEF this year.
“Solar companies on this list are largely financing,” said Day. “But even on the hardware side we’re moving towards a couple of trends on hardware innovation. There’s more modularity not only in solar, but Newterra [water remediation company] is innovating hardware in distributed assets.” Day also cited Digital Lumens, one of his portfolio companies that made the list, as having an innovative business model that enables it to embed its LED lighting hardware in fixtures to focus on end users. He points to this type of business model innovation, with companies focusing on being a “solutions provider”, as a major investment theme.
Cleantech in the oil and gas industry was another growth area for the top 100 for the second year. Fourteen companies on the list target the sector to improve resource efficiency such as Ciris Energy, Siluria Technologies and OsComp Systems.