After spending the better part of the last two years scrambling to survive the recession, the discussion has shifted for cleantech firms and companies are now trying to figure out the best way to manage the recovery. Investors expect the greentech industry to come out ahead and lead the economic rebound this year, according to a survey released last week by accounting firm KPMG. The survey found that 77 percent of respondents believe venture investments in green technology will increase this year after declining last year, while only 67 percent expect overall venture capital investment to grow.
Experts are anticipating a crop of cleantech IPOs this year, as well, while some, such as venture capitalist Vinod Khosla, are concerned that some greentech IPOs this year may disappoint investors and sour the market for other green IPOs. Stimulus programs, such as the new round of ARPA-E funding announced last week, also are shifting the financing landscape, leading to new tactics as companies try to leverage government funding to advance over competitors.
Shifting market conditions are reshuffling the deck for clean technology, strengthening some companies’ hands while weakening others’ – and spurring new thinking and innovation about how to make progress at a time when traditional financing is harder to come by, according to a new GigaOM Pro report called “Cleantech Financing Trends: 2010 and Beyond” (subscription required) released Tuesday. As a result, we’re seeing some changes, such as new financing models, including investments from strategic partners, community banks and utilities, and new types of partnerships with corporations and cleantech companies from other countries.
Meanwhile, the report predicts that valuations this year will remain lower than their peak in 2008, although they will likely grow from the lows of 2009. That means the funding being raised is more expensive and is also harder to come by. Investors at all stages are requiring startups to meet more milestones, such as offering more demonstrations proving that the technology works or agreements with customers, before doling out cash, according to the report.
Companies are conserving cash, precariously balancing the need to make progress — in order to get to the next funding round — with the need to make the money last as long as possible. Venture capitalists such as CMEA Capital’s Maurice Gunderson say they are seeing less aggressive plans than they did in 2008. As he put it, “You don’t get to have a long run if there’s no short run.”
Project financing also remains more expensive than in 2008, although it is far more available now than last year. Companies having the hardest time are those that have proven their technology in demonstration projects and are ready to commercialize with large, expensive factories. Unless companies can get government loan guarantees – which have accelerated, but are still trickling out slowly –- risk-averse debt financiers are reluctant to finance first commercial projects with less-established technologies.
Some projects have taken on more expensive private equity to fill the debt-financing gap, but that may also be getting more difficult. The Cleantech Group reported earlier this year that venture capitalists are moving away from energy generation and toward energy efficiency plays, which are expected to be less capital-intensive.
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