Global cleantech venture capital deal volume hovered above the 1,000 mark in 2013, for the third consecutive year, with most investments directed toward the Energy Efficiency, Transportation, Solar, and Biofuels & Biochemicals sectors. In the U.S., the number of deals was consistent, at 638 in 2013, compared with 644 deals in 2012 and 545 deals in 2011.
Investors showed strong interest in waste management as well as food and agriculture, and observers are hoping Monsanto’s $930 million purchase of weather-data provider The Climate Corp. is a harbinger of things to come.
“We’ve talked a lot about food and [agriculture] and I would say that there are a lot of different angles to this,” said Sheeraz Haji, CEO of research and advisory firm Cleantech Group during a recent webinar to discuss investment trends in 2013. “It’s about precision and it’s about automation and it’s about having better data, [such as] how much water is appropriate and what’s the right nutrient content for the soil that optimizes yield.”
Plant science startup ZeaKal, seed company Kaiima, and plant breeding and plant genetics investor VoloAgri Group are among the agriculture companies that secured investments in 2013, according to data from Cleantech Group. Agriculture investment increased by 96%, with 55 deals in 2013, versus 28 deals in 2012.
“I think there’s a lot of innovation around seed[s], and the idea [is] that… better seeds can lead to better plants[, which] can lead to better yields,” said Haji.
For example, Next Step Biofuels, a company that Cleantech Group has been “quite impressed with,” is designing a seed for biofuels in addition to providing biomass as a substitute for coal in generating electricity, said Haji.
On the outskirts of the spectrum are companies that provide meat and protein substitutes, such as Beyond Meat, a plant protein company that offers products that are produced sustainably, as well as web-based models designed to deliver food to consumers, he added.
Indeed, researcher CB Insights reported in 2013 that investments in food technology had ballooned to $350 million while deal volume grew by 37% over the prior year, prompting mainstream newspapers, including The New York Times, to start reporting on venture capital investments in food technology.
Aside from Agriculture, also generating strong investor interest are Recycling & Waste companies such as EcoATM, which recycles phones and tablets, and rePlanet Recycling, which provides locations for recycling items with a California Redemption Value deposit. Outerwall, formerly Coinstar, acquired EcoATM for $350 million in July, and RePlanet was acquired by Masdar Capital for $67 million.
“There’s tremendous opportunity in waste management and recycling,” Haji said during the webinar. Recycling & Waste companies took in $371 million across 52 deals, with deal volume increasing by 27% versus 2012.
Top Investment Categories
In addition to the pockets of growth and optimism in sectors such as Food & Agriculture and Waste Management, other “big themes” of the past year were Energy Efficiency, Transportation and Solar, said Haji.
The clear leader was Energy Efficiency, which comprised a robust 20% of venture capital deals. The Energy Efficiency sector attracted $1.3 billion in investments across 188 deals, an increase of 23% in terms of dollars, over 2012.
The transportation sector followed closely behind with 17.3% or $1.2 billion, which represents an increase of 20% compared to last year. Much of the investments in transportation weren’t in electric vehicles, however, but in cleanweb companies, such as Uber, which has become a buzzword. Other cleanweb companies that received major investments in 2013 include eHi Car Service (receiving $100 million), DiDi Taxi (receiving $100 million) and Lyft (receiving $75 million).
Solar came in third, with 11% or $719 million, in 92 deals. Even though Solar was the third sector overall in terms of investment, the amount of investment dollars dropped by 13% in 2013 compared to 2012.
Similarly, the Biofuels and Biochemicals sector attracted $584 million in 66 deals, a decrease of 39% compared with the $952 million the sector attracted in 2012.
Notably, the number of deals in the Advanced Materials sector, at 83, represented an 80% surge over 2012, and the 69 deals in the Water sector showed a strong 28% increase over 2012.
Lower Annual Dollar Investment, but Positive Quarterly Trends
Plus, while total venture dollars invested globally were pegged at $6.8 billion, this was a decline of about 14% over last year; still, it isn’t as steep a decline as the 2011 to 2012 decline of 24%, said Haji, which is a sign that stronger times are to come. This lower dollar volume reflects investors’ focus on more capital-efficient deals.
“This is the first year in a number of years that Q4 is the strongest quarter,” said Haji, although he noted that he was cautious about how much to read into the quarter-to-quarter comparisons. In Q4, venture investment increased by 40% over the third quarter, reaching $2 billion for the first time since Q2 of 2012, indicating a strong upward trend.
In addition, the average venture round size increased during each quarter of 2013, from $5.3 million in Q1 to $10.1 million in Q4.
Corporate Activity Shows Resiliency
The number of corporate venture capital deals dropped slightly to 187 in 2013, versus 199 deals in 2012. Sheeraz noted that not all of 2013’s corporate deals have been tallied yet, however.
Mergers & Acquisitions of venture capital- and private equity-backed cleantech companies increased by 12% in 2013, to 85 deals.
The Cleantech Group’s CEO expects more M&A deals in the areas of LED lighting and energy efficiency in 2014. He also said that big IT companies are showing increased interested in investing in cleantech, particularly in the area of “smart buildings.” One example of this he cites is Cisco’s 2013 purchase of Joulex, a company that reduces energy usage in buildings and data centers.
Strong Public Cleantech Markets and IPO Pipeline
Additionally, venture capital- and private equity-backed cleantech IPOs raised 19% more in the pubic market ($1.7 billion) in 2013 versus 2012 ($1.4 billion), although the number of VC/PE backed IPOs dropped to 14 from 16 in 2012. However, Haji expects the IPO market to be more robust in 2014. He points to several reasons for his optimism, including: good performance of 2013’s cleantech IPOs, strong public market appetite for cleantech companies, and a robust pipeline of potential 2014 IPOs, including companies such as Opower, Bloom Energy, Intematix, SunRun, and Clean Power Finance.
He also noted that 2013’s top gainers in the Russell 3,000 stock index were cleantech stocks, including: Revolution Lighting, SunPower, Tesla, and SolarCity.