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Venture capital investments in cleantech fall by 50 per cent in 2009

US venture capital investment in cleantech companies in Q4 2009 decreased 45 per cent to USD564.5m compared to the prior quarter, while the number of deals increased 21 per cent to 62, according to an Ernst & Young analysis based on data from Dow Jones VentureSource. 

Investment in 2009 reached USD2.6bn in 193 financings rounds, a decline of 50 per cent in terms of dollars and 16 per cent in terms of deals compared to the record investment levels of 2008.

"These results reflect the easing of an investment cycle largely driven by the significant capital demands of solar companies and a shift toward energy efficiency products with lower funding requirements and potentially faster commercialization," says John de Yonge, Ernst & Young associate director, Americas cleantech network. "Energy efficiency is in the sweet spot of many venture capital investors in terms of skill sets and funding parameters, particularly given its basis in information technology. Consequently, we may see investor participation in cleantech broaden."

In 2009, the number of financing rounds in the energy efficiency category — encompassing technology areas such as smart grid and residential and commercial energy management solutions — grew in absolute terms by 11 per cent to 61, making it the number one area of cleantech deal activity. 

The energy efficiency category share of total financing activity in 2009 rose from 24 per cent to 32 per cent. At the same time, the share of financing rounds directed to the more capital intensive energy/electricity generation category fell from 30 per cent to 18 per cent. Similarly, the share of deals going to alternative fuels declined from 13 per cent to eight per cent.

The energy efficiency category received the most US VC investment in Q409, with USD252.8m and 22 deals, compared to USD133.7m and 14 deals in Q309. This category raised USD593.3m for all of 2009. The largest deal of Q409 in energy efficiency — and across all cleantech segments — was the USD105.0m investment in Silver Spring Networks, a provider of networking infrastructure and services for smart grids, based in Redwood City, California.

The energy/electricity generation category garnered USD118.5m with 11 deals in Q409, down from the USD316.5m invested in eight deals in the prior quarter; USD654.6m was invested in this category in 2009. The largest deal in Q409 was the USD38m raised by Nordic Windpower Holdings, based in Berkley, California.

The industry focused products and services category raised USD76.7m in Q409 with 11 deals and USD608m throughout 2009. The funding in this segment was led by the transportation industry, which raised USD33.8m in Q409 and USD362.7m for the year, propelled by investments such as the USD82.5m in the electric car company Tesla based in San Carlos, California. According to a recent study conducted by Ernst & Young’s Global Automotive Center, over ten per cent of US drivers — or approximately 20 million people — would consider purchasing a plug-in hybrid or electric vehicle.

The San Francisco Bay Area was the leading region for cleantech investment in 2009, with USD1.2bn invested for the year and USD295.6m in Q4. Southern California came in second place with annual investment of USD329.5m and Q4 investment of USD30.5m. New England was the third-largest regional cleantech centre with USD283.7m for the year and USD38.0m for Q4.

The US government continues to serve as an influential cleantech investor. Under the Section 48C Advanced Energy Manufacturing Tax Credit of the American Recovery and Reinvestment Act, USD2.3bn was recently awarded to 183 cleantech manufacturing projects in 43 states. An Ernst & Young analysis of these awards shows that venture-backed projects received USD402m in awards. President Obama’s 2011 budget proposal would provide an additional USD5bn appropriation for the Section 48C program, offering further support for cleantech development.
The US Patent and Trademark Office is further supporting government commitments to cleantech solutions by examining certain green technology applications to reduce the time required to patent these technologies by an average of one year.

Large corporations are accelerating adoption of clean technologies to create a competitive advantage through resource efficiency, sustainable growth and cleantech-driven revenue opportunities. In a recent Ernst & Young study of executives at global corporations with revenues in excess of USD1bn, over 50 per cent of respondents indicated their companies’ intentions to spend at least USUSD10m on cleantech products and services by the end of 2010, with 22 per cent predicting a cleantech spend of at least USD100m.

US public markets investment in clean energy totalled USD2.8bn in 2009, according to Bloomberg New Energy Finance. With capital markets showing signs of improvement, three cleantech companies recently filed to raise up to USD500m in initial public offerings, according to Thomson Reuters. The largest transaction is expected to be the offering by Solyndra, which anticipates raising USD300m. 

US cleantech merger and acquisition activity reached 53 transactions with a disclosed value of USD3.5bn, according IHS Herold. Nearly half of this activity in took place in Q4 2009, which saw 22 transactions with a disclosed value of USD1.7bn. One notable fourth quarter deal is the acquisition of Clipper Windpower by United Technologies for USD327.4m.

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