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Summary:

Will huge returns on social media investments — like Groupon, LinkedIn or Pandora — help make up for underperforming greentech investments in a venture firm’s portfolio? If so, perhaps this gives firms time — and wiggle room — to keep up their cleantech investing.

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Last month, I raised the idea that the LinkedIn IPO might be bad for cleantech investing because a coming bubble around venture-backed social media companies will only add to the trend of VCs moving away from investing in cleantech. But here’s at least one reason why a wave of big returns for VC-backed social media companies might help greentech, at least indirectly: Huge returns on web investments for a venture firm could help make up for under performing greentech investments in a firm’s portfolio.

OK, I’m generalizing here, given it’s hard to declare startups a loss for investors, particularly when greentech companies seem to have a lot longer time frame to achieving revenues or getting an exit. But clearly, in some cases it’s the same venture firms that will be collecting on the latest social media IPOs — Groupon, Pandora, Kayak, potentially Zynga — that have also led some of the more high-profile, and capital-intensive, investments in greentech firms.

Take New Enterprise Associates (NEA), which will be one of the big winners from the Groupon IPO. According to these calculations in the Wall Street Journal  (taken from Groupon’s S-1), NEA put $4.8 million as the first institutional into Groupon and then followed that up with a $10 million investment in November 2009. For NEA’s $14.8 million, the firm currently holds 14.7 percent of Groupon Class A stock, and that’s after NEA already cashed out $70 million in December. If Groupon goes public, that percentage could be worth $2 billion, or a 135 x on-paper multiple (the article posits it could be worth up to $3.4 billion on paper). NEA’s entire fund (for Internet, mobile, cleantech etc.) was $2.5 billion.

Now look at some of NEA’s over two dozen investments in greentech. The firm might have a few wins, like if electric car maker Fisker Automotive goes public, and Opower seems to be doing well. But there are greentech startups in its portfolio that are pretty capital-intensive and also not clear winners like Bloom Energy, HelioVolt, GridPoint, and Konarka, to name a few. Thin-film solar company HelioVolt has been stuck in a pre-commercialization phase, despite raising over $100 million, and last I heard, NEA investors were openly trying to sell it. Konarka is also stalled in a perpetual R&D phase, while GridPoint has raised a lot of money and hasn’t seemed to secure that many paying deals. Nine-year-old Bloom Energy has raised at least $400 million, and I’ve heard rumors that it’s running out of money for more expansion, though if the company goes public and the IPO is successful, NEA could do well on it.

It’s hard to tell which startups, in the greentech space or otherwise, will end up being homeruns. But NEA’s Groupon return will basically trump the return on all its other investments — and namely its likely losses on greentech — combined for years. So in a way, perhaps the social media is indirectly a good thing for a venture firm’s overall portfolio, so the fund can have some wiggle room on potentially risky greentech losses. Hey, just sayin’.

Image courtesy of Dr. Stephen Dann.

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  1. I really would like to think we aren’t in a bubble because IPO window is a bit more narrow for the cleantech sector and if a couple of social media IPOs go sour, that could be bad news for the cleantechies and some much needed exits.

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