Cleantech VCs Foresee Increase in Exits and Deals

U.S. cleantech investors expect to do more deals this year and see more exits of their portfolio companies, after a sluggish 2009.

Those were two of the takeaways of a January survey of 41 cleantech investors by Reuters and Venture Capital Journal.

More than 51% of the respondents said they expected one to two of their companies to be acquired or go public this year, which translates to anywhere from 21 to 42 companies. That would be a significant increase from last year, when only one VC-backed cleantech company, lithium-ion battery maker A123 Systems, went public on a U.S. exchange and just seven VC-backed cleantech companies were acquired, according to Thomson Reuters (publisher of VCJ).

Three VC-backed cleantech companies have already registered to go public this year:

Codexis, which is working with Royal Dutch Shell on biofuel products, has registered for a $100 million IPO. Codexis has raised more than $125 million in VC from Bio*One Capital, Chevron Technology Ventures, CMEA Capital, and the Malaysian Technology Development Corp., among others, according to Thomson Reuters.

• JinkoSolar Holding Co. Ltd., a China-based solar company, has filed for a $100 million on the New York Stock Exchange. It previously raised $35 million in venture funding from CIVC Partners, Shenzhen Capital Group Co. and Pitango Venture Capital, according to Thomson Reuters.

• And Solyndra Inc., which builds thin-film solar tubes, filed for a $300 million IPO. It has raised more than $500 million in venture capital from Argonaut Private Equity, CMEA Capital, Redpoint Ventures, Rockport Capital Partners and U.S. Venture Partners.

More Deals Ahead

Cleantech investors also expect to be more active this year. Extrapolating from the responses of the 41 VCs who took the survey, they plan to make up to 140 new investments in cleantech companies this year. That would be a significant increase from last year, when the U.S. venture industry as a whole made 117 new cleantech investments, according to Thomson Reuters.

The primary focus of cleantech investors is now conservation. Some 65% of respondents surveyed said their top cleantech bet for 2010 would be energy conservation-related companies, such as makers of LED lighting, energy-efficient building materials, software that tracks and manages energy used in home and electric vehicles. Less than 18% of the respondents said they would target companies focused on “clean” energy production, such as wind, solar, wave power and biofuels, to replace energy produced by coal and oil. And just 15% said they would target companies focused on energy storage, such as battery makers.

Change Won’t Come Overnight

Most cleantech VCs surveyed don’t expect the world to make significant gains in slowing climate change by 2020, but they are optimistic that the startups they finance will lead the way in creating technologies that reduce global warming.

“It is likely that we will make significant technology, conservation and policy gains globally … but material CO2 reductions will take an additional decade to register,” Don Wood, a managing director at Draper Fisher Jurvetson, wrote in one survey response.

Robert Nelsen, co-founder and managing director of Arch Venture Partners, noted that “the world has absolutely no hope of making any substantial impact on global warming without major scientific breakthroughs, almost all which will come from United States’ innovation. China and Europe are doing well developing markets and applications, but we [the United States] still own the fundamentals.”

U.S. Is Best

More than three-fourths of the survey respondents said the United States would be the best market for cleantech over the next five years, and 88% said America was the best place to base a cleantech business in the next five years.

China ranked as the second best market (with 16% of the total) and the second best place to locate a cleantech business (with about 13%).

The survey respondents, most of whom are based in the United States, clearly recognize the critical role that other countries will play if widespread adoption of clean technologies is to be successful.

Countries such as China, India and Brazil “will adopt such technologies not just to combat climate change, but also because of the sheer energy demand their economies are generating,” wrote Bilal Zuberi, a principal with General Catalyst Partners. “Pressure from these countries will force the developed world to also adopt renewables and energy efficient technologies at a faster pace.”

One caveat—over the next decade, the progress will come from companies that have already moved beyond venture capital, with public share sales or by being bought out.

“VC-backed companies will definitely play a part, but considering it takes five years for one to mature, it is the companies that exist today that will have the biggest impact by 2020,” wrote Todd Jaquez-Fissori, a managing director at Hercules Growth Capital.

Additional reporting by Clare Baldwin, Reuters

RESULTS OF VCJ-REUTERS CLEANTECH SURVEY

Venture Capital Journal and Reuters surveyed 41 cleantech investors from Jan. 4 to Jan. 14, 2010. Here are the results.

How many cleantech investments overall do you expect to make in 2010?

(Choices/ No. of responses)

None = 0

1 to 2 =7

3 to 4 = 11

5 to 6 = 12

7 to 8 = 4

9 to 10 = 1

10 or more = 6

How many NEW cleantech investments do you expect to make in 2010?

(Choices/ No. of responses)

None = 1

1 to 2 =17

3 to 4 = 17

5 to 6 = 5

7 to 8 = 1

9 to 10 = 0

10 or more = 0

Which general cleantech area will you focus on most in 2010?

(Choices/ No. of responses)

Energy production. Companies that make energy technologies to replace energy produced by coal and oil (e.g. wind, wave power, solar, biofuels) = 7

Conservation. Companies that reduce the use of energy produced by coal and oil (e.g. makers of LED lighting, energy-efficient building materials, software that tracks and manages energy used in home, electric vehicles) = 26

Storage. Companies that store energy (e.g. batteries) = 6

Other = 1

Which cleantech segment will be your No. 1 investment focus in 2010?

(Choices/ No. of responses)

Smart Grid = 3

Energy management (e.g. systems to track/control energy use in the home) = 12

Energy storage (e.g. batteries/fuel cells) = 12

Solar = 1

Wind = 0

Water = 2

Biofuel = 1

Carbon trading = 0

Materials = 3

Other = 5 (Five respondents said “combination,” “energy & water efficiency,” “energy efficiency,” “impossible to tell,” and “energy management – non-residential.)

How many of cleantech companies in your investment portfolio do you expect to go public or get acquired in 2010?

(Choices/ No. of responses)

None = 14

1 to 2 = 21

3 to 4 = 6

5 to 6 = 0

7 to 8 = 0

9 to 10 = 0

10 or more = 0

Where is the best market for a cleantech company over the next five years?

(Choices/ No. of responses)

U.S. = 29

China = 6

European Union = 3

Other = 1 (Respondent said South East Asia)

Where is the best place to base a cleantech company over the next five years?

(Choices/ No. of responses)

U.S. = 35

China = 5

European Union = 0

Other = 1 (Respondent said South East Asia)

Will the world make significant gains in slowing global warming by 2020, and what contribution will U.S. and/or global venture-backed companies play in that effort?

(Note: Anonymous responses not included. —Ed.)

“There will be modest gains by 2020. Assuming proper circumstances (e.g. government policy, financing environment, etc), venture-backed companies will be responsible for the vast majority of the progress with regard to global warming. Of these, U.S. venture-backed companies will lead the way.”

Josh Green

General Partner

Mohr Davidow Ventures

***

“The world has absolutely no hope of making any substantial impact on global warming without major scientific breakthroughs, almost all which will come from United State’s innovation. Legislation alone will not cut it–U.S. science will save the day. China and Europe are doing well developing markets and applications, but we still own the fundamentals. Without major breakthroughs that allow low carbon technologies like solar and biofuels to cost compete with conventional technologies, none of the current cleantech technologies will have enough of an impact. The good news is those new technologies exist today in labs in the United States.”

Robert Nelsen

Co-Founder and Managing Director

ARCH Venture Partners

***

“Yes. Global VC-backed companies will play an important role to reduce global warming with its flexible ideas and business models.”

Kenichi Gomyo

Manager, Fund Management and Administration Team

Japan Asia Investment Co. Ltd.

***

“More than half of the progress in slowing global warming by 2020 will be driven by venture backed companies.”

Peter W. Moran

General Partner

DCM

***

“I believe we will make tremendous gains in slowing global warming but not at as fast as rate as we expect. There is a huge implied delay in the effect any chances we make today will have on the environment tomorrow. This simply means we need to ‘bite the bullet’ spend the money and make a difference before it is too late. VC-backed companies will definitely play a part, but considering it takes five years for one to mature, it is the companies that exist today that will have the biggest impact by 2020.”

Todd Jaquez-Fissori

Managing Director

Hercules Growth Capital

***

“Venture-backed technology companies are making renewable energy technologies available to the developing and rapidly growing markets around the world, e.g. China, India, and Brazil. These countries will adopt such technologies not just to combat climate change, but also because of the sheer energy demand their economies are generating. Pressure from these countries will force the developed world to also adopt renewables and energy efficient technologies at a faster pace.

Bilal Zuberi

Principal

General Catalyst Partners

***

“Yes. US will provide innovation and breakthrough technologies to drive the increased adoption of alternative/sustainable technologies.”

Ullas Naik

Managing Director

Globespan Capital Partners

***

“Significant gains will not be made, venture-backed companies will play a prominent part in whatever progress is achieved.”

David B. Jones

Managing Partner

SAIL Venture Partners

***

“No. The world needs big scale deployments. Big enough to supply energy for new energy growth AND start to replace the old coal infrastructure. Renewables and efficiency at predicted deployment rates given the lack of funding availability are not even going to supply the world’s growth. We’ll see progress in technology development, cost effectiveness, and expanded adoption of hybrid vehicles, but the RPS/Kyoto/Copenhagen targets will mostly be ignored. We need to ‘carpet the desert’ with solar thermal mirrors and thin film solar at a scale that replaces coal in the US, China and India.”

Mark Platshon

Partner

VantagePoint Venture Partners

***

“Cleantech encompasses a range of technologies that are creating solutions to serious global problems. Venture backed companies are in every corner of the cleantech space and their effect is already becoming evident. With many of these companies still in their infancy it becomes clear that as they begin to grow, their effect at curbing climate change will prove invaluable to both today and in the near future of 2020.”

Peter M. Polydor

Associate

SAIL Venture Partners

***

“It is likely that we will make significant technology, conservation, and policy gains globally…but material CO2 reductions will take an additional decade to register.”

Don Wood

Managing Director

Draper Fisher Jurvetson