Corporate VCs Prowling For Cleantech Startups

Cleantech investors expect a better year in 2011. More money will flow to startups, a new crop of better performing IPOs should come to market and M&A might even pick up.

Less noticeable but perhaps as important, strategic corporate investors could become more active.

All of this comes against a difficult backdrop. The year gone by wasn’t the greatest, even if investing did rebound from 2009’s dreary pace.

I wrote a piece for January’s Venture Capital Journal discussing the outlook for cleantech in 2011, and I won’t repeat its observations here. (The magazine should shortly be in the mail if it is not already delivered.)

But a point I didn’t explore in the story that may have a considerable impact next year is the inevitable mainstream adoption of green innovation making cleantech investing and M&A relevant not just to energy companies, but across many industries.

We will likely see more signs of this in 2011 as the economy recovers and CEOs and boards again eye growth plays.

For their part, VCs are likely to be “back on offense” in 2011, says Mohr Davidow Ventures General Partner Erik Straser. But similarly, “strategics are going to be very active and that’s going to be very good for cleantech startups,” he says.

The reason is that large corporations increasingly see cleantech innovation as vital to their businesses as other kinds of product and market innovation, says Wal van Lierop, chief executive of Chrysalix Energy Venture Capital. Now, they appear willing to encourage that innovation at startups.

This momentum behind green already was evident in 2010. As Alan Salzman, Chief Executive of VantagePoint Venture Partners, likes to point out, several key milestones show an industry increasingly finding its place in the market:

*During 2010, the United States approved the first of a new generation of giant solar thermal plants to compete with traditional natural gas and fossil fuel plants. BrightSource Energy Inc. won approval for its Ivanpah plant in southern California (illustration).

*Better Place began building the world’s first substantial electric car infrastructure in Israel and Denmark.

*The first of a new generation of mass-market electric cars – the Nissan Leaf and Chevy Volt – began rolling out of factories.

*Companies such as Tesla Motors Inc. and Amyris Inc. went public.

*California voters supported their state’s aggressive greenhouse gas reductions targets at the November ballot box.

So what else can we expect in 2011? How about an environment that is increasingly ruled by survival of the fittest? “The me-too companies will have a difficult time raising capital,” says Salzman.