The credit crunch and dropping oil prices could threaten certain aspects of cleantech investing, but there’s a silver lining — at least for venture capitalists. The valuations of companies are dropping, and that means the VC is in the catbird seat when it comes to funding companies and taking a stake.
Last week at the Dow Jones Alternative Energy, a panel of investors highlighted those types of positives in a bear market. Lee Bailey, managing director of U.S. Renewables Group, said that even over the past few weeks, valuations have gone down dramatically, resulting in better deals. It’s proof that the market works, Bailey said. Raj Atluru, managing partner with Draper Fisher Jurvetson, said that this is actually the time when great returns can be made. “If anything, we’re doubling down,” said Atluru.
Many investors we’ve talked with have indicated they’ve been getting tired of having to pay such high valuations over the past few months as a sort of green bubble had emerged. Now with a green crunch blowing in, particularly for later-stage companies looking for financing for plants and manufacturing, the competition between investors funding deals, could subside somewhat. All the investors on the panel at the conference said that in the long-term cleantech offered one of the biggest opportunities of their lifetimes.
So, that means green startups looking for funding will have to be especially careful. Investors have the upper hand right now, so if you don’t need to raise funding, don’t. As Tesla’s CEO Elon Musk explained last week at the Dow Jones conference, the terms just started to look pretty bad for fund raising, so why not wait it out? Tesla has a loan guarantee to help it out, but for small green companies, it’s time to keep cutting spending and staying lean until the outlook is better.