Cleantech investing quietly re-emerging as smaller, more rational and capital-light

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Despite a continuing drop in the amount of funding that venture capitalists are willing to put into “cleantech” companies, a more rational style of VC investing in cleantech has emerged in 2013. A variety of investors are closing on modest funds that are investing small amounts into companies that have much shorter lifecycles and require smaller amounts of funding to scale. Many of these companies use software and IT at the core of their businesses.

SJF Ventures this week announced the close of its third fund, which has $90 million under management. The firm has invested in a variety of sustainability-minded startups including innovative waste and recycling company CleanScapes, clean power services company Community Energy, e-waste recycling company eRecycling Corp, data center efficiency software company Fieldview Solutions, and Optoro, which uses software to sell and move undersold goods. The firm also invests in companies that aren’t focused on sustainability like MediaMath. SJF’s limited partners include banks, insurances and financial services firms, mutual and pension funds, family offices, among others.

Apple Solar Farm

SJF said in its announcement that its second fund “is performing in the top quartile all U.S. venture capital funds of its vintage year.” Compare that to the pretty weak returns disclosed by cleantech limited partner heavyweight CalPERS, or the analysis provided by Venrock partner Matthew Nordan.

SJF Ventures partner David Kirkpatrick told me its cleantech investing thesis is focused on companies that are “capital efficient” and have business models that deliver immediate value to customers, like asset recovery, reuse and efficiency. In addition, the company provides growth equity investments, meaning they back companies that are later stage and are already delivering revenues — grow something that’s already working.

Cleantech Open western regional 2012

This type of cleantech 2.0 investing thesis has been around for awhile. The “Cleanweb” folks call this trend cleanweb, because many times the underlying technologies are digital ones. Greg Neichin, Executive Vice President of Cleantech Group, described the trend last month by saying: “We are seeing the market moving beyond irrational exuberance and becoming more cautious and thoughtful in deploying capital.”

SJF isn’t the only one still optimistic about cleantech investing. Earlier this year The Westly Group closed on a $160 million fund that it will invest into cleantech companies. The Westly Group backed three companies that went public, including electric car company Tesla, biofuel company Amyris, and Chinese recycling company China Recycling Energy Corporation (CREG). The firm raised the funds from investors like Citi, E.ON and SK Group.

Other firms that are still strong in cleantech investing include Khosla Ventures, Braemar Energy Ventures, Lux Capital, and Kleiner Perkins. A report from Cambridge Associates, and reported by Dan Primack, found that while cleantech investing has underperformed, it hasn’t been the black hole that it appeared. Really large and bad bets like Solyndra and Fisker have skewed public perception around how much money the sector has lost.

The Cleantech Group reported last month that the first quarter of 2013 saw total venture dollars in cleantech down by 29 percent from the fourth quarter of 2012, but that the number of deals was up for the quarter. Half of the number of deals were for Series B rounds or later, but almost all (90 percent) of the dollar amounts of the deals were for Series B rounds or later.

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