Cleantech: No Longer for Generalist VCs

Cleantech investing: it’s no longer for the everyday general venture capital firm. Last week, Mass High Tech published an interesting article looking at data about 10 venture firms that made five or more new cleantech deals between 2003 and 2008, and then completely pulled back from new cleantech investments after 2008. The top 5 firms that made the most deals between that period and then fell off a cliff, according to research from Dow Jones Venture Source and Mass High Tech, include @ventures, Battelle Ventures, DCM, Vulcan Capital and Labrador Ventures.

These 10 firms (see table at the bottom) seem to have given the grand cleantech investing experiment about five years, and then realized it wasn’t for them — or at least wasn’t making them enough money at a fast enough rate. As most people who follow cleantech investing know by now, the timelines to exits and acquisitions seem to be consistently longer and require more capital than investing in information technology.

The 10 firms did make a few follow-on cleantech investments (re-investing for a second or third time into a company) after 2008, because, well, once an investor does a deal with a startup, they tend to be willing to put more money in to try to ensure it will get its money out. Follow-on rounds also dominated the near record levels of cleantech investment figures that came out last month for the first quarter of 2011 (at nearly $2.6 billion in deals), mainly because the solar and transportation deals that emerged in the 2004 to 2007 timeframe (BrightSource, Fisker, and Solyndra) are now getting deep into their capital-intensive cycles, as investor Neal Dikeman explained it for an article for us.

The good news is that while the firms that weren’t finding enough success to keep them in the game are pulling back, the cleantech-focused firms that are used to the timelines and capital requirements are doubling down. Peter Rothstein, president of the New England Clean Energy Council and a former investor at Flagship Ventures, told Mass High Tech that the cleantech specific firms might be smaller and fewer but that they’re doing more deals.

There are also new firms emerging specifically focused on cleantech investing that are ready to learn lessons from the past and also structure deals in new ways. The article points out WindSail Capital, which plans to issue secured notes for cleantech startup assets, and is structured more like a hedge fund. At our Green:Net event last month I interviewed Adam Grosser and Cathy Zoi who will be heading up private equity firm Silver Lake’s new cleantech fund called Kraftwerk (see video below) and who plan to make more later stage cleantech expansion deals.

Watch live streaming video from greennet2011 at

After five years, the learning curve is starting to happen for cleantech investing, and a shift is occurring. Whether the next round of investors have more success than the previous ones, (or Cleantech investing 2.0) remains to be seen. But there’s nothing like losing — or gaining — significant amounts of money to get people to figure out their strategies.

Firm New Deals ’03 to ’08 New Deals ’09 & ’10 Follow-On ’09, ’10
@Ventures 9 0 3
Battelle Ventures 7 0 2
DCM 6 0 3
Vulcan Capital 6 0 2
Labrador Ventures 5 0 2
Expansion Capital 5 0 2
Atlas Ventures 5 0 2
RRE Ventures 5 0 5
Innovation Valley 5 0 2
Rustic Canyon 5 0 2

Image courtesy of hans.gerwitz.