CleanTech Investment Has Record 2nd Quarter

US venture capital investment in cleantech companies in Q2 2009

• reached $572m, an increase of 73 per cent in terms of capital,
• with 48 financing rounds, a 100 per cent increase in number of transactions

compared to Q1 2009, according to an Ernst & Young analysis based on data from Dow Jones VentureSource.

Compared to Q2 08, the second-highest quarter for cleantech investment on record, the Q2 09 results were 59 per cent and 16 per cent below those record levels in terms of capital and number of transactions respectively.

Venture capital investment in cleantech in Q2 09 was lead by the Energy/Electricity Generation category, which raised $157m, a quarterly increase of 181 per cent as compared to Q1 09.

• Within this category, solar deals received the lion’s share of capital, more than trebling to $148m compared to the prior quarter.
• Deal activity in the solar segment represented 26 per cent of all quarterly cleantech investment by venture capital firms.
  
  The solar results were driven by deals such as the $25m, first round investment in Skyline Solar, based in Mountain View, CA, which was led by New Enterprise Associates.
  

The Energy Efficiency category grew 168 per cent from Q1 09 to $152m due to power and efficiency management service deals that accounted for the majority of investment.

This segment experienced 143 per cent growth during Q2 09, attracting $93m. A notable deal in this segment was the $30m investment in the residential smart grid company Tendril. This investment was led by VantagePoint Venture Partners and has since followed with a partnership with GE to enable smart appliances to communicate over metering and broadband networks.

The demand for environmentally-friendly transportation options encouraged investment in the Alternative Fuels category to $53m in Q2 09, driven by the $40m later stage round investment in biofuels company Gevo.

Additionally, the Transportation sector received a $65m investment in Q2 09. The majority of this funding came from Daimler AG’s $50m investment in Tesla Motors.

‘The quarterly uptick reflects investor confidence in the ability of cleantech companies to capitalize on market opportunities,’ said Joseph A Muscat, Ernst & Young, Americas director of cleantech.

‘While enacted and anticipated government actions have helped bolster confidence and catalyse new capital, we believe that leading cleantech companies will be defined by their ability to execute on business plans and advance their technologies through commercialisation and distribution despite the challenging economy.’

Quarterly venture capital investment in cleantech exhibits a shift from companies in the product development stage toward companies in the start-up and shipping product stages. Start-up cleantech companies received 8 per cent of financing rounds in Q2 09 compared to none in Q1 09. Companies at the shipping product stage accounted for 65 per cent of financing rounds compared to 54 per cent in the prior quarter. By contrast, product development stage companies received just 27 per cent of financing rounds compared to 46 per cent last quarter.

Q2 09 results also illustrate the continued mix of investors who are partnering to advance the US cleantech market. Seven of the top ten cleantech venture deals included participation by private equity, hedge fund or corporate investors, according to the analysis. For example, the $54m investment in Powerspan Corp., a carbon dioxide capture technology company, was made by a syndicate of investors that included VC firms, private equity firms, corporate investors and a hedge fund.

The rebound in venture capital investment in cleantech was accompanied by a rise in private equity and asset backed financings. Around $240m of clean energy private equity investment was recorded, a rise of 12 per cent.

This figure includes the $69m round secured by the battery manufacturer A123 in Watertown, MA, and the $50m investment in Spectrawatt, a solar cell manufacturer.

Clean energy asset financings grew significantly, increasing from $307m in Q1 2009 to $2.9bn in Q2 2009.

Wind was the primary driver of asset backed financing activity, with deals such as the $504m financing secured by First Wind for a 203.5MW project. Solar projects were also supported. SunPower Corporation obtained an undisclosed amount of project financing for its 1.1MW photovoltaic project from Wells Fargo.

Additionally, there were 12 US M&A transactions of which three had disclosed values totaling $157m, according to JS Herold. Six of the deals include alternative fuel companies.

Government support continues to influence the growth of the US cleantech market. The US Department of Energy released more than $47m from the American Recovery and Reinvestment Act (ARRA) of 2009 to accelerate the completion of eight smart grid demonstration projects in seven states.

At state level, the state of Michigan is providing GE with $74m in tax incentives in light of the company’s plan to build a $100m advanced-manufacturing centre to develop renewable-energy technologies near Detroit.

Prospectively, the Department of Treasury’s guidance released in July for accessing grants in lieu of the investment tax credits for qualified energy property, as authorised by ARRA, was another positive step for the cleantech market, particularly as the DOE begins to review applications in August and makes payments within 60 days after receipt of qualified applications.
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