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Summary:

You’ve probably heard it before, but the amount of VC funding for cleantech startups has steadily dwindled and now it’s back below pre-2006 levels.

By now a lot of venture capitalists have learned that cleantech investing isn’t an easy way to make money. Some investors have made money, but many have lost a lot of money, and the cooling off effect is very clear, particularly with the latest third quarter numbers from the National Venture Capital Association and Pricewaterhouse Coopers (using data from Thompson Reuters).

The third quarter of 2013 saw the 7th consecutive drop in cleantech venture investing. In Q3 there were 40 deals and $297 million invested, which was a 20 percent drop in dollars from the second quarter of 2013, and a 65 percent drop from the third quarter of 2012. This funding is anything that is classified as venture, which includes venture arms of corporations, institutions, and investment banks. If it’s not classified as venture, and it’s from a corporate, seems like it’s not included here.

If you look at the graph below — made up of Q3 numbers between 2006 and 2013 — the third quarter numbers in 2013 are lower than even in 2006, when cleantech investing was first starting to get interest from VCs, but before the bubble of the years following 2006. Between 1995 and 2005 Q3 VC investments in cleantech were always below $200 million.

Cleantech VC investing seems to have continued at a decent rate over the last couple of years because many of these have been follow-on investments, so VCs have been protecting their earlier investments. The real problem in recent years has been there’s not many new and early stage investments in cleantech happening.

The narrative in cleantech investing is that the corporates will come in and pick up this slack, and to some extent that’s been true. But I’m wondering to what extent. I’ll dig into this for a future post.

  1. You should consider profiling a few Cleantech VCs – some who haven’t been successful and others who have. It would be interesting to hear about the lessons learned (from both sides)

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  2. If we exclude follow-on investments, how does the graph change. It should be easy to do since there are not that many deals.

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  3. Definitely a fairly brutal market out there. However, a lot of cleantech entrepreneurs are focusing more on software/cleanweb/capital-efficient businesses that require less funding. Not sure if that’s a cause or effect.

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