Monday, October 31, 2011

Cleantech VCs wait for fog to lift after 'chilling effect' of Solyndra

The National Venture Capital Association and Thomson Reuters this month reported that the last quarter marked the lowest amount of venture capital raised in the US since Q3 of 2003.

Cleantech and life sciences lost out to a surge of investments in the software sector, which enjoyed its strongest quarter in almost 10 years, according to the MoneyTree report. The software industry received $2bn while the cleantech sector saw a 13% drop in dollars to $891m in Q3 from the second quarter when $1bn was invested. The number of deals completed in the third quarter also declined.

Another 13 of the 17 sectors monitored by MoneyTree have all been affected by market volatility: telecommunications; semiconductors; media and entertainment all suffered. But cleantech is likely to take a further hit as seed stage funding – critical in maintaining the momentum in R&D — also fell 56%, with $179 million invested across 89 deals in Q3.

More established cleantech companies fared better, with thin film solar manufacturer Heliovolt, based in Austin, Texas, raising $85m - the 4th largest US VC investment in Q3. And a shift of focus to energy storage benefited fuel cell manufacturer ClearEdge Power with $73.5m in later stage funding from Kohlberg Ventures and other undisclosed investors.

Stephan Dolezalek from VantagePoint said that although Q3 2011 was an improvement on last year, there were three macro factors driving the slowdown in cleantech investments: closure of the IPO window, solar panel prices and the "chilling effect" of Solyndra's collapse.

"On a broader view there are really three macro factors that are affecting cleantech investors. The first would be the closing of the IPO window and some concern that that window might not reopen before 2012 elections depending on what happens to budget issues in Europe and the US. So that window opening or not is of significant concern to investors.

"Number two, we’ve had a very obvious and ongoing drop in panel prices that’s based in large part on the strong levels of support that the Chinese government is giving their solar and wind industries. But obviously that wreaks some havoc with the trading multiples of companies both here in the US and Europe.

"Finally, we’ve had the chilling effect of the political battle over Solyndra. When you take all of those combined into account, I would argue that if you put enough fog on the road investors in cleantech have largely slowed down to try to see what happens when the fog lifts."

He suggested that the current political climate in the US was not helping either, with industries in China and the EU better able to whether the economic storms because of long-term national and regional targets.

"Despite the European financial crisis, clean tech everywhere but the US seems to be strong. In Europe it is supported by both the liberal and conservative parties it doesn’t have quite the same Republican/Democratic split that we see here in the US. And from China’s 12th five-year plan, we obviously see that they are supporting clean tech in an extraordinary way and we’re also seeing strong support in Brazil, Australia and India. So the US is probably the one market in which we have a fair amount of pull back."

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