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Summary:

Some potentially disturbing cleantech investing trends from Kachan & Co: a good number of the cleantech companies that are getting funding lately are “walking dead,” or companies kept alive waiting for exits.

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The quarterly numbers are trickling out from the cleantech research firms this week, given the end of the third quarter is here. I’ve looked at a few of the numbers and early media reports, which prompted me to write “Greentech Investing: Not Working For Most” earlier this week. But research firm Kachan & Co, has noticed some potentially even more disturbing cleantech trends bubbling up over the quarter, including a good number of the cleantech companies getting funding lately are “walking dead,” or companies kept alive waiting for exits.

That’s the result of a couple of trends. Kachan & Co has found that a diminishing pool of investors have been putting money into cleantech companies since early 2009. I would speculate that there’s fewer active investors because exits are not happening fast enough for the traditional investor. And also maybe because in a recession some of the cleantech investments that cost more money also didn’t look appealing.

As we’ve said before, the length of time of commercialization and maturation of some of these cleantech companies is far longer than an investor is used to. As Bill Gates said in a Q&A a few months ago, in reference to the lack of investors in the nuclear space: “You’re not going to have a lot of people putting down money when the siting delays, the waste problems, the time period to get something done is actually longer than the length of the patent. It’s longer than people are patient for about risk-oriented capital.”

But the investors who are still funding companies are pumping money into older, more established firms hoping to get returns on some of those investments they made years ago. Hence, the dependence on the “walking dead.” “More of those funds than ever before are going to shoring up mature companies,” says Dallas Kachan, Managing Partner with Kachan & Co. “Less than 10 percent of global cleantech venture investment dollars today are going into early stage deals.”

Lastly Kachan & Co, found that China utterly dominated cleantech exits and in particular cleantech IPOs. Kachan says:

“For several quarters now, there have been roughly four times as many cleantech IPOs each quarter in China than either North America or Europe. And much higher returns are being made. It’s time for investors and entrepreneurs in North America, Europe and elsewhere to recognize this. The huge cleantech returns in China are getting too little attention.”

So anyways, Silicon Valley cleantech investing? Not a pretty picture.

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  1. Ramana Gogula Friday, October 1, 2010

    Makes sense.

    Even in this part of the world (India) Banks and investors are treading cautiously. India has a National Mandate to generate 20K MW of power with solar. The long timelines for ROI combined with unclear exit strategies are the main concerns.

    In the case of Solar, there is an additional fear that the PV efficiencies may suddenly shoot up from the current 14-16% to a 30-40% with a technology innovation.

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  2. [...] Kachan & Co. found that an increasing amount of greentech investment this year has gone into shoring up startups that haven’t been able to engineer an exit via an IPO. The challenge is clear in the solar power field, where a large chunk of the $822 million invested [...]

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  3. [...] 1. Venture capitalists won’t invest in greentech like they used to. In 2008, VCs put $7.6 billion into greentech startups. But a lot of that money was headed to capital-intensive biofuel and solar startups — and many of those investments have had trouble making the leap to full-scale commercial competition in a weak economy. Now they struggle to find exits in a down economy, or are going back to investors for some carry-through investment. [...]

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