Investments by venture capitalists into smart grid companies — or firms that are adding digital intelligence to the power grid — has remained “extremely weak” over at least the last three quarters, according to research firm the Mercom Capital Group. Investments by VCs into smart grid companies peaked in 2010, and have continued to decline throughout 2011 and 2012. This includes the venture arms of the corporates, like Siemens, ABB, and General Electric.
Mercom says this is due to:
“shifting business models as the industry continues to struggle to understand customers needs and address customer misconceptions along with security concerns among other issues.”
Let’s look at the amount of IPOs and acquisitions for smart grid startups, which is what VCs look at when they decide if they want to invest in a sector or company — essentially how much money can they get back for their investment.
Smart grid network Silver Spring Networks has yet to go public, despite filing its S-1 in the Summer of 2011. Silver Spring Networks has investment from Foundation Capital, Kleiner Perkins, W.R. Holdings, and more recently EMC and Hitachi. I thought Opower would have gone public by now, too. Opower has investors including New Enterprise Associates and Kleiner Perkins.
Acquisitions are actually pretty prevalent in the smart grid space. But a lot of the purchases are either large power companies buying other large energy hardware makers, or the smaller smart grid startups that are many times being sold off for small amounts. SmartSynch and Ember were sold off for not much more than they had raised over their lifetimes. Many of the small smart grid deals are not being disclosed because the investors don’t want to reveal the low valuation of the company.
Then there’s just the fact that the smart grid has stalled a bit, at least in the U.S. Some of that has been because of an inability of utilities to actively engage consumers, and another reason has just been an affect of the recession.
Pike Research has predicted that installations of smart meters in the U.S. will actually sharply decline over the next two years, before they pick back up. One of the reasons is that utilities in California will have finished many of the smart meter installation projects that they started a few years ago. Another reason for the decline is that the Department of Energy gave smart meters a temporary injection a couple years ago.