Cleantech may have seen the worst, rebounding to $1.2B in 2Q09

The global cleantech sector may have seen the worst, according to data released today by the Cleantech Group in conjunction with accounting firm Deloitte.

Second quarter results for cleantech venture investment total $1.2 billion across 94 companies, indicating a rebound from the previous two quarters, which were down corresponding with other investment sectors affected by the credit crisis, liquidity issues and a lack of exits. But it's too early to tell whether the rebound can be sustained.

“It looks like we have bounced off the bottom,” said Brian Fan, the Cleantech Group’s senior director of research. “One quarter isn’t a trend, but it looks like the worst is behind us.”

“The market has been reset back to 2006 conditions,” Fan said.

The Cleantech Group has been tracking the sector since 1999 and provides research, advisory services and networking events around the world. The group also publishes this Web site.

The second quarter total is up 12 percent from the previous quarter, but down 44 percent from the same period a year ago, according to the Cleantech Group. The second quarter’s average round size was $12.9 million, up from $12.3 million in the previous quarter.

The transportation sector was the clear forerunner, with vehicles, biofuels and advanced batteries bringing in a combined $607 million, which is the highest level of venture investment they have ever received in a single quarter, Fan said.

“Investors, policymakers and auto manufacturers are all looking beyond traditional internal combustion engines to the next big growth market,” Fan said. “There’s a consciousness that the next big market is around plug-in and full electric vehicles.”

He cited examples including companies such Tesla Motors receiving its $465 million loan guarantee from the U.S. Department of Energy and the Chinese positioning their major auto manufactures to be leaders (see Who is next for $17B in DOE auto loans? and Chery Auto drives China’s week of cleantech domination). In June, China’s largest private automaker Chery Automobile rounded up $425 million from domestic investors for its clean energy program and a new sedan plant.

But solar took a dramatic nose dive to its lowest level of investment in more than three years, with only $114 million invested, down from an all-time high of $1.2 billion invested in the third quarter 2008.

“I don’t expect solar to basically go away or investors not to fund anything in solar, but it won’t reach $1.2 billion in investment anytime soon,” Fan said.

Fan suggested solar’s slump is occurring because the concentrated solar power (CSP) and copper indium gallium (di)selenide (CIGS) cell segments have been very capital intensive. Investors have been pulling back from these spaces to fund more capital efficient business models. He indicated investors are also not funding large rounds of $100 million to $150 million in thin-film photovoltaic and CSP.

“Some of these companies may go out of business,” Fan said. “But that’s a natural thing in the venture space. In fact, I think it’s kind of healthy that we have seen a correction. We have seen valuations become more rational. We have seen a lot of investors that had come into the sector pull back. But the core original investors are still in the space.”

He said the result is that some companies may have to change their business models. He cited examples of companies already doing so including Ausra and eSolar, which are moving toward being licensors of their technology to other developers, rather than being the developers and owners of solar thermal projects as originally planned (see Ausra scores $25.5M for new equipment sales focus, Ausra shaves staff as it chases immediate revenue and NRG Energy, eSolar sign 500 MW solar deal).

The Cleantech Group's findings include North America, Europe and Israel, India, and China. North America accounted for 66 percent of the investment total, while Europe and Israel made up 21 percent, India took 11 percent and China was at 1 percent. Fan indicated India has never had this percentage of the world's share before, and that India might fall back next quarter. 

The six most active venture firms in cleantech in the second quarter were Kleiner Perkins Caufield & Byers, Khosla Ventures, Braemar Energy Ventures, Robeco Alternative Investments, Draper Fisher Jurveston and VantagePoint Venture Partners.

Deloitte's Managing Partner Mark Jensen, in the Venture Capital Services Group, said that in a recent survey of venture capitalists, there was a significant amount of interest in cleantech, compared to other sectors such as software, semiconductors, telecommunications, and biopharmaceuticals. About 63 percent of VCs indicated increasing the amount of capital they plan to invest in cleantech during the next three years, while 32 percent said their level of investment would remain the same.

"The space is going to continue to garner more than its fair share of investment capital over the next few years," Jensen said. 

The report also showed that merger and acquisition activity shot up from the previous quarter by 291 percent. Fan attributed some of this to utility companies snapping up the assets of startups. Cleantech M&A totaled about 138 transactions this quarter, of which totals were disclosed for 40 transactions totaling $12.2 billion. During the previous quarter, 123 M&A transactions were recorded, of which 28 were disclosed for a total of $3.1 billion.

Fan also said cleantech companies receiving government stimulus funds have “changed the playing field.” Companies without government affairs officials or who aren’t hiring lobbyists are at a disadvantage.

Although the IPO market was primarily dormant, the Cleantech Group noted two cleantech IPOs in the second quarter: China Metal Recycling (HKG:0773) started trading on the Hong Kong Futures Exchange raising $186 million (see VantagePoint triple-dips in cleantech), while Duoyuan Global Water (NYSE:DGW) listed on the New York Stock Exchange raising $88 million (see Pound-for-pound, cleantech deals have a British twist). In another notable transaction, Broadwind Energy transferred shares from the Over-the-Counter Bulletin Board to the Nasdaq on April 9.

Cleantech developments making news in the past 24 hours

• AES raises $1.58B with China Investment
• Patently unobvious
• Dow’s reverse osmosis tech picked for Australian desal plant

View the last week of cleantech developments here | Subscribe to full feed