It’s not a shocker for anyone to hear that venture capitalists invested significantly less money into cleantech startups in 2012. According to data released by the Cleantech Group on Thursday, venture capitalists globally invested $6.46 billion into cleantech startups — which includes solar, biofuels, energy efficiency, energy storage, transportation and more — in 2012. That was down 33 percent from the $9.61 billion that VCs invested into cleantech startups in 2011.
As Cleantech Group CEO Sheeraz Haji put it in a call with the media: the sector saw “a significant drop off.” That was caused by a variety of issues in 2012, including cheap natural gas (which makes solar and wind projects less economical), the commoditization of solar modules (which makes VCs less willing to invest in solar manufacturing innovation), and global government uncertainty, as many clean energy technologies have relied on government support to be competitive.
Haji also said that the sector has experienced “a cleantech cliff” of sorts, given that clean energy received so much support through the U.S. government recovery package, and will not likely see that same type of government support in the near future. In addition, the cleantech sector is suffering through its own startup and investor crisis as companies, entrepreneurs and investors have been burned by funding companies that required more capital and more time than expected, said Haji.
However, Haji said he is still bullish on the opportunities for innovations for some sectors like energy efficiency, clean web, water, agriculture, bio chemicals, and more. “A foundation has been built,” over the past few years in cleantech and that will grow in value,” he said.
But if you’re going to brave either building a cleantech startup, joining a cleantech company or investing in cleantech startups, here’s 5 things you definitely should not do:
1). No more capital intensive plays: Investors that put money into cleantech in 2012 put less money into individual cleantech startups. The average round size raised by a cleantech startup was $10.9 million in 2012, down from $14.4 million in 2011. The average Series B round size for a cleantech startup in 2012 was $16.3 million, down from $20.8 million in 2011. The average early stage round for a cleantech startup in 2012 was $2.7 million, down from $4.6 million in 2011. The days of startups raising hundreds of millions of dollars in VC funding for electric cars, electric car infrastructure, thin-film solar materials or new battery technologies is largely over (some exceptions remained in 2012).
2). Stay away from new solar materials and manufacturing: According to the Cleantech Group, investment in solar technology innovation represented almost 40 percent of all of the VC dollars that went into cleantech in 2008. In 2012, solar technology represented about 12 percent. As solar modules become commoditized, it’s hard to create innovation on a material and manufacturing level. Again, some companies are still doing this, but it’s just a lot more difficult.
3). Don’t rely on a cleantech IPO: O.K. SolarCity made it out in 2012, but over 2012 there were ten VC-backed cleantech IPOs that were pulled, according to the Cleantech Group. Even in China, which previously has been a hot clean energy IPO market, there were real challenges in 2012, said Haji. Don’t expect 2013 to get all that much better.
4). Corporate investors aren’t the savior: Now that VCs are pulling back from cleantech investing, a common mantra in the industry is to say that corporate investing is really ramping up. But according to the Cleantech Group, corporate investing — from the likes of GE, BP, Shell, Siemens etc — also dropped off significantly in 2012. Corporate investors put $31 million into cleantech startups in the fourth quarter of 2011, and that dropped to $26 million in Q1 2012, $24 million in Q2 2012, $20 million in Q3 2012, and $18 million in Q4 2012.
5). For new early stage cleantech companies, VCs are probably not your best bet: Not many VCs are doing investments in early stage — brand spanking new — cleantech deals any more. There’s a few, but they are the outliers. While cleantech investors back 344 early stage deals in 2011, only 282 early stage cleantech deals took place in 2012. On the other hand, if you can market your company not as a cleantech company, that’s a better way to get some VC dollars.
Image courtesy of huskyte77.