VC investment in clean tech firms drops 48% in Q1

Venture-capital investment in so-called green technology companies dropped 48 per cent in the first quarter as the recession spread to an industry that had been the fastest growing sector for startups.

Clean-energy companies raised $1 billion from venture-capital firms in North America, Europe, China and India, consulting firm Cleantech Group and accounting firm Deloitte said in a study released today. That represented the lowest level of investment in companies developing technologies such as solar, ethanol and longer-lasting batteries in two years.

To counter the drop, startups are turning to the government, utilities and corporate investors such as oil companies, the study said. The authors said governments worldwide have packed $400 billion for clean energy into stimulus packages to fight the economic decline.

 

“It’s something we foresaw back last fall because of the economy,” Cleantech research director Brian Fan said in an interview. “If you’re starting a company, times are tough. If you started a company and now need $30 million to expand, times are really tough.”

The decline in venture capital was driven by a drop in the average size of each deal funded, which in turn reflects lower company valuations, the report said. The average size of an investment in a clean-energy company dropped to $12.3 million in the first quarter from $20 million as recently as the third quarter of last year.

US venture investment in the clean-energy sector grew 54 per cent last year to $4.12 billion, according to the National Venture Capital Association. Venture-capital commitments to clean technology in the US rose 85 per cent in 2007. Venture capitalists have been hurt by the broader stock market declines, Fan said, which has left universities and pension funds, who back their investment funds, strapped for cash. That leaves few outlets when startups need tens of millions of dollars to begin producing the products they have invented using smaller, initial capital infusions.

“The capital-intensive businesses are having a hard time not just in VC, but in the debt markets as well,” he said. Government loan guarantees such as the $535 million the US Department of Energy gave solar-panel maker Solyndra Inc last month are needed to fill the financing gap, Fan said.