US venture capital (VC) investment in cleantech companies in Q1 2010 hit $733.3 million in 72 financing rounds, a 68% increase in capital and a 118% increase in deals compared to Q1 2009, according to an Ernst & Young LLP analysis based on data from Dow Jones VentureSource. Compared to Q4 2009, these results represent a 6% decline in funding and 1% decline in financing activity.
Cleantech investment is recovering faster than overall venture capital investment, which increased 11% from Q1 2009 to $4.7 billion. The total share of venture capital invested in cleantech reached 16% this quarter.
Early stage venture financing was particularly robust in Q1 2010. The 34 seed and first rounds represented 49% of financing activity, the highest percentage since Q4 2008. The Energy Efficiency category received the largest proportion of seed or first round investments, 41%, underscoring the sector’s appeal for new financing and company creation.
“With rising oil prices and growing signs of economic recovery, particularly in Asian markets, the drivers for cleantech remain strong,” said Gil Forer, Ernst & Young’s Global Cleantech Leader. “Given that the majority of government stimulus funds have yet to be deployed, the intensifying focus on cleantech solutions as a driver of operational efficiency, and the robust cleantech innovation pipeline, we expect increased activity in coming quarters,” added Forer.
Growing focus on Energy Efficiency
Companies in the Energy Efficiency cleantech category garnered the greatest number of deals, 20, in Q1 2010, continuing a trend that emerged in 2009. Activity in this cleantech segment represented 28% of quarterly financings and a 100% increase over the same period last year. With 11 deals, the Energy Efficiency Products sub-segment, which includes technologies such as smart meters and lighting management systems, was the largest segment in this category. Adura Technologies, a San Francisco-based provider of building lighting control systems, received the largest financing in this segment with a $12 million later stage round.
The venture investment focus on energy efficiency is reflective of broader trends. Electric utility energy efficiency budgets grew by 60% over the past two years, reaching $4 billion in 2009 – up from $2.5 billion in 2007, according to a report from the Consortium for Energy Efficiency (CEE). In March, the US Senate introduced a bill that would establish a “Building Star” program, which would yield a prospective $6 billion in funding. The program includes rebates and financing incentives for building owners to upgrade their property’s energy efficiency, including interior and exterior lighting, energy management, HVAC, motors, and drives.
Electric vehicles drive investment
The Industrial Products & Services category had the largest amount of capital invested, receiving $261.7 million in Q1 2010, and 36% of total quarterly financing. This cleantech segment represented a year-on-year increase of 490%, attributable to large financings of two California-based electric vehicle manufacturers: the $100 million later stage round closed by Coda Automotive, Inc. and the $93 million later stage financing secured by Fisker Automotive, Inc.
Corporations are also pushing the electric vehicle agenda. General Motors will invest $246 million to become the first major US automaker to manufacture electric motors for hybrids and electric vehicles. Toyota, Nissan and Mitsubishi, Fuji Heavy Industries and Tokyo Electric Power jointly created the CHAdeMO Association to increase the number of quick-charge stations for electric vehicles worldwide and standardize how to charge vehicles. UPS deployed 200 hybrid delivery trucks in eight additional US cities. Meanwhile, FedEx plans to be the first US delivery service to use an all-electric truck when it adds four Navistar vehicles to its fleet in June.
Energy/Electricity Generation investment powered by solar
The Energy/Electricity Generation category was the third-largest segment of the quarter and increased 30% in terms of dollars raised from $138 million in Q4 09 to $179.6 million. Solar investment, in particular, rebounded in Q1 2010. It increased 233% from the same period last year to $159.9 million, propelled by the $60 million round received by SolarCity, a solar power solution provider for home owners and businesses, based in Foster City, CA.
Government and utilities are playing an important role in moving solar developments forward. The US Department of Energy will provide $1.37 billion in loan guarantees for solar energy firm BrightSource Energy and its solar power complex in the Mojave Desert, which would be world’s largest with combined capacity of more than 400 MW. PG&E and SCE have entered into long-term agreements to purchase the power generated by the plants.
Positive momentum in other asset classes
Quarterly data compiled by Bloomberg New Energy Finance indicate that US clean energy asset finance rose to $3.5 billion in Q1 2010, from $2.4 billion in Q4 2009, and recorded its strongest quarter since Q2 2009.
Additionally, two cleantech companies recently completed IPOs and the pipeline of cleantech companies in IPOs in registration is growing. Attleboro, MA based solar-power sensor maker, Sensata Technologies, completed a $569 million IPO in March. Biofuel company Codexis Inc. completed an IPO in April raising $78 million. Cleantech companies in IPO registration include Tesla Motors, Inc., Amyris Biotechnologies, Inc., Solyndra, Inc., and Silver Springs Networks.