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Summary:

We’ve all heard that following weak returns, venture capital cleantech investing has retrenched. So what’s next? A style of investing that is a whole lot more rational, return-driven, shorter timelines and capital lite.

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Despite a continuing drop in the amount of funding that venture capitalists are willing to put into “cleantech” companies, a more rational style of VC investing in cleantech has emerged in 2013. A variety of investors are closing on modest funds that are investing small amounts into companies that have much shorter lifecycles and require smaller amounts of funding to scale. Many of these companies use software and IT at the core of their businesses.

SJF Ventures this week announced the close of its third fund, which has $90 million under management. The firm has invested in a variety of sustainability-minded startups including innovative waste and recycling company CleanScapes, clean power services company Community Energy, e-waste recycling company eRecycling Corp, data center efficiency software company Fieldview Solutions, and Optoro, which uses software to sell and move undersold goods. The firm also invests in companies that aren’t focused on sustainability like MediaMath. SJF’s limited partners include banks, insurances and financial services firms, mutual and pension funds, family offices, among others.

Apple Solar Farm

SJF said in its announcement that its second fund “is performing in the top quartile all U.S. venture capital funds of its vintage year.” Compare that to the pretty weak returns disclosed by cleantech limited partner heavyweight CalPERS, or the analysis provided by Venrock partner Matthew Nordan.

SJF Ventures partner David Kirkpatrick told me its cleantech investing thesis is focused on companies that are “capital efficient” and have business models that deliver immediate value to customers, like asset recovery, reuse and efficiency. In addition, the company provides growth equity investments, meaning they back companies that are later stage and are already delivering revenues — grow something that’s already working.

Cleantech Open western regional 2012

This type of cleantech 2.0 investing thesis has been around for awhile. The “Cleanweb” folks call this trend cleanweb, because many times the underlying technologies are digital ones. Greg Neichin, Executive Vice President of Cleantech Group, described the trend last month by saying: “We are seeing the market moving beyond irrational exuberance and becoming more cautious and thoughtful in deploying capital.”

SJF isn’t the only one still optimistic about cleantech investing. Earlier this year The Westly Group closed on a $160 million fund that it will invest into cleantech companies. The Westly Group backed three companies that went public, including electric car company Tesla, biofuel company Amyris, and Chinese recycling company China Recycling Energy Corporation (CREG). The firm raised the funds from investors like Citi, E.ON and SK Group.

Other firms that are still strong in cleantech investing include Khosla Ventures, Braemar Energy Ventures, Lux Capital, and Kleiner Perkins. A report from Cambridge Associates, and reported by Dan Primack, found that while cleantech investing has underperformed, it hasn’t been the black hole that it appeared. Really large and bad bets like Solyndra and Fisker have skewed public perception around how much money the sector has lost.

The Cleantech Group reported last month that the first quarter of 2013 saw total venture dollars in cleantech down by 29 percent from the fourth quarter of 2012, but that the number of deals was up for the quarter. Half of the number of deals were for Series B rounds or later, but almost all (90 percent) of the dollar amounts of the deals were for Series B rounds or later.

  1. I guess I’m a little disappointed that no one has commented on whether a smaller, more rational, and capital-light CleanTech ought to be acceptable.

    Certainly from the Venture community’s viewpoint the returns should be more straightforward — they’re in the business of “feeding the meter” with coins from IPOs.

    But with all of the “smarts” in the valley, I would of thought that by now we’d have found a way to “move the meter” on the issues contained in CleanTech and still get the returns VCs expect.

    Maybe the wrong people are involved in CleanTech, or the maybe problem wasn’t as easy as everyone thought.

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  2. Mario Avila Monday, May 6, 2013

    I am glad to read that there are still venture firms out there that are interested in cleantech and are raising funds to promote the sector. However, I still feel that the root of the problem lies not only with the development of disruptive technology, but the adoption. The difficulty of cleantech is two-fold; innovative breakthroughs and adoption by the masses.

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  3. Felix Hoenikker Tuesday, May 7, 2013

    Having worked in cleantech vc form 2008 through 2012, it is my opinion that there weren’t many VCs that truly understood the many technologies and markets that comprise cleantech. There were a lot of smart people that deceived themselves and fund investors into thinking they were smart enough to figure out a number of foreign industries because they were successful in a different unrealted career. Alternatively they’re at the tail end of their career and just want to play the role and call themselves a VC whether or not their fund does well. I can count on one hand how many of them had the the technical, market, and financial acumen to intelligently invest in the space…..how many of them even worked at a utility? Or run a cvd unit? installed a solar panel? made an LED display? Cleantech is in dire need of a new higher caliber breed of cleantech investor. An example to illustrate my case is…..after all these cleantech investors performed due diligence on solar companies, their research or failed investment should have indicated the likely collapse of a few chinese solar panel manufacturers however I did not see one of their names trading any of those shares……cleantech is not just venture capital.

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