Report: Cleantech’s Third-Quarter Growing Pains

1. Summary

Green technology needs to grow up and face a tough job market — that’s the news from the third quarter of 2010. Global venture capital (VC) investment into the cleantech sector fell to $1.53 billion in the third quarter, the Cleantech Group reported. This figure is down from the previous quarter’s record haul of $2.18 billion and the $1.71 billion invested in the same quarter of 2009.

While year-to-date VC greentech investment still looks on track to set a record, with the second-highest annual take ever (2008 being the benchmark), 2010 trends also revealed some serious challenges for early-stage green technology firms. Only 20 percent of the third quarter’s VC investment went to early-stage firms, compared to 35 percent in 2007, according to the MoneyTree Report. This is a sign that opportunities in maturing sectors are becoming increasingly hard for investors to identify.

The third quarter did see 152 greentech deals made; that number that may grow to exceed the second quarter’s 158-deal tally, Cleantech reported. At the same time, the pool of greentech investors is shrinking, as the sector’s long time to commercialization is becoming clearer.

Late-stage greentech companies took an increasing share of VC investment in the third quarter, but many of these, too, are struggling. Indeed, a number of these companies have been dubbed the “walking dead” by research firm Kachan & Co. In other words, mature startups are going back to venture investors for more funding while they wait for the economy and public markets to improve. While venture-stage greentech companies saw their struggles, global investment in clean energy as a whole saw a boost in the third quarter, rising to $37.9 billion, up from $33.9 billion in the previous quarter and $34 billion in the same period last year, Bloomberg New Energy Finance reported. Asset finance, mostly big wind and solar power projects, set a record at $32.8 billion. Nearly half of that came in China, which set its own record at $13.5 billion invested.

The latter figure is part of an unmistakable shift occurring — from North America to Asia. While third-quarter North American greentech deals still took the grand prize at $928 million, that figure was down 42 percent from the same period a year ago. California led that decline, with a 61 percent drop in investment compared to the same period last year, although its $452 million haul still led all other states. Texas came in second, with $126 million. At the same time, Chinese greentech investments rose from $30 million in the second quarter to $153 million in the third quarter — nearly half the Asia-wide third-quarter investment tally of $300 million, up from $100 million in the previous quarter. Europe and Israel saw $382 million in investment, down from both second-quarter and year-ago third-quarter totals.

China’s growing greentech might was also highlighted by initial public offering (IPO) activity in the third quarter. Five Chinese companies raised $180 million in IPOs, compared to two in North America that raised a combined $172 million in IPOs. Of course, the third quarter’s IPO performance must be placed in context to last year’s; in that context, it didn’t look good, with a total of $430 million raised in third-quarter IPOs, far below the second quarter’s $2.31 billion haul, the e Cleantech Group reported. The firm’s figures, however, did not include a $350 million IPO by China Ming Yang Wind Power. Total public market investment stood at $3.7 billion in the third quarter, up from $2.6 billion in the previous quarter, Bloomberg New Energy Finance reported.

Mergers and acquisitions also lagged in the third quarter, with $4.04 billion reported in disclosed figures, compared to the previous quarter’s $5.77 billion. Utilities buying renewable power led the field, with Exelon’s purchase of John Deere Renewables for $900 million and NRG Energy’s $350 million acquisition of Green Mountain Energy. Sharp’s $305 million purchase of Recurrent Energy continued the ongoing trend of consolidation in the solar project development field. As for corporate spending in green technology, the big spender was General Electric, which racked up 82 percent of the total corporate greentech investment in the third quarter.

As for the government largesse that’s helped sustain green technology growth through the recession of last year, it had mostly been spent as of the end of the third quarter. That government support has been critical, given the dire economic straits now hobbling recovery both in the United States and around the world. But it has also been linked to job creation, a task which green industries have been slow to deliver on, even if they did constitute an estimated 3 million jobs worldwide as of last year, according to a recent report from Clean Edge.