Venture capitalists have invested billions of dollars in developers of materials and technologies to make buildings more energy efficient. But when it comes to producing exits, the green building sector has yet to demonstrate it can deliver returns.
Those were the findings from a recent report from Lux Research and an analysis of venture return data from Thomson Reuters (publisher of VCJ), which showed that the pipeline of later stage, still-private companies in the space remains large and growing.
Lux estimates that since 2000 VCs have pumped more than $4 billion into the race to build greener buildings. Yet the sector has generated only a handful of venture-scale exits.
Lux counts 16 VC-backed companies in the space that have exited, mostly through acquisitions. The research firm also sees several mature startups as ripe acquisition targets, including Digital Lumens, an LED lighting systems developer, Control4, a provider of wireless “smart home” systems, and Adura Technologies, a developer of wireless lighting and energy management systems for commercial buildings.
Meanwhile, the invested dollar has shifted toward later stages. Last year, for instance, nearly half of the funding in the space, totaling $445 million, went to 15 late stage investments, according to Lux. Investors in the space see opportunity for the pace of exits to pick up, as the first wave of green buildings startups matures.
“There has been a big wave of first investment in the energy space, where lots of capital got deployed,” says Paul Straub, a director at Claremont Creek Ventures, which has invested in several green building-related portfolio companies, including Adura. “But the underlying drivers of the opportunity aren’t going away.”
In the accompanying chart, we look at those and other green-building-related companies that have raised significant sums of venture capital.
Photo: Solar panels are placed atop a mock house of Sekisui House, one of Japan’s largest home builders, in Yokohama, near Tokyo June 13, 2012. Japan approved on June 18, 2012 incentives for renewable energy that could unleash billions of dollars in clean-energy investment and help the world’s third-biggest economy shift away from a reliance on nuclear power after the Fukushima disaster. Toru Hanai, Reuters.