US Cleantech Venture Capital Continues to Gain Momentum

US venture capital (VC) investment in cleantech companies in Q3 2009 increased 46% compared to the prior quarter to $965 million in 50 financing rounds, according to an Ernst & Young LLP analysis based on data from Dow Jones VentureSource. This is the second consecutive quarter of growth in 2009 and the fifth-largest quarterly investment total on record. Compared to Q1 2009, quarterly investment has increased 182% in terms of capital and doubled in terms of financing rounds.

Continuing a trend that began in the first quarter of 09, the majority of investment dollars – 61% – in Q3 was directed to companies that are currently shipping products. In the first nine months of 09, 62% of capital invested went to companies that are shipping products compared to just 37% for the same period.

A variety of investors continue to support the cleantech sector. Of the top 10 venture capital-led deals in Q3 09, four included private equity investors, three included corporate investors, and one included a sovereign wealth fund.

“Continuing growth in cleantech investment in the third quarter reflects investor confidence in the commercialization of clean technologies,” says Joseph A. Muscat, Ernst & Young LLP, Americas Director of Cleantech. “The diversity in this quarter’s investment activity, in terms of the technologies
receiving investment and the participating investors, illustrate the potential to create value through the development of a low-carbon economy.”

The Energy/Electricity Generation category received the largest amount of investment in Q3 09 with $316 million, representing 33% of the quarter’s VC investment in cleantech. Solar technologies garnered the majority of investment in this category, raising $309 million, a quarterly increase of 115%. Investment in the solar segment was spread across five deals, led by the $198 million deal done by Solyndra, a photovoltaic system developer for the commercial market in Fremont, CA.

Industry-specific products and services for cleantech generated strong VC interest in Q3 09 with $289 million invested, a 57% increase from the previous quarter. This increase was driven by deal activity in the construction, materials and transportation segments. The $83 million investment in Tesla Motors, based in San Carlos, CA, by Aabar Investments, Daimler AG, and Fjord Ventures, was the largest investment in this category.

Environmental Products and Services was the third-largest category in Q3 09, raising $120 million. Two deals account for this amount: the $100 million investment in WastePro, a waste removal services company in Longwood, FL and the $20 million investment in Liquid Environmental Solutions, a Dallas-based company that removes non-hazardous liquid waste streams.

The Alternative fuels category, consisting entirely of biofuels deals, grew by 58% to $71 million. Interest in biofuels among large oil corporations was evident in Q3 09, with the $25 million investment in LS9, Inc., a developer of renewable fuels and sustainable chemicals based in San Francisco, by a syndicate of investors that included Chevron Technology Ventures. Exxon Mobil announced it was investing $600 million in a partnership with Synthetic Genomics Inc. of La Jolla, CA, to develop commercially viable biofuels from algae. BP Plc and Martek Biosciences Corp. are partnering to study the use of algae to convert sugar into biodiesel.

Ongoing impact of ARRA and other government funding for cleantech:

The impact of the American Reinvestment and Recovery Act (ARRA) began to befelt in the market as funds were disbursed and spent in significant amounts over the third and forth quarters. For example, the US Department of Energy (DOE) recently announced $3.4 billion in grants for energy grid modernization projects, which the government expects to be matched by industry funding, bringing the overall funding to over $8 billion.

As of the end of September, New Energy Finance (NEF) tracked $18.2 billion in disbursed ARRA funds to state and local agencies for energy efficiency, renewable energy, grid improvements and carbon capture and sequestration. NEFestimates that $9.5 billion in ARRA funding in these categories has actually been spent in the market. This growing pipeline of stimulus spending, which NEF expects to peak in 2010 or 2011, contributes to cleantech market confidence.

Other government programs designed to promote cleantech development are also having an impact. In September, the DOE awarded the fourth conditional loan under its Advanced Technology Vehicles Manufacturing program for $528.7 million to Fisker Automotive. Created by the Energy Independence and Security Act of 2007, the $25-billion program is designed to spur the development of fuel-efficient vehicles.

Cleantech investments in other asset classes:

US clean energy asset financings totaled $789 million in Q3 09, down from the $1.7 billion of transactions in Q2 09, according to NEF. A notable deal in this category is the $300 million investment by Wind Capital Group for a 150 megawatt wind project in Missouri.

M&A transaction values also increased in Q3 09 with 8 deals valued at $750 million, more than triple the $157 million recorded in Q2 09, according to IHSHerold. Two large deals accounted for the majority of this amount, Covanta Energy’s $450 million acquisition of Veolia Environmental Services’
waste-to-energy unit and Terra Firma Capital Partners’ acquisition of Everpower Wind Holdings from Good Energies for $200 million.

Clean technology encompasses a diverse range of innovative products and services that optimize the use of natural resources or reduce the negative environmental impact of their use while creating value by lowering costs, improving efficiency, or providing superior performance.

Source: http://www.reuters.com/article/pressRelease/idUS122316+29-Oct-2009+PRN20091029

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