Ernst & Young: Cleantech Investments Robust

Venture capital investments in cleantech companies continued to show robust growth in the first quarter of 2008, according to an Ernst & Young report based on data from Dow Jones Venture One. Capital invested grew by 18 percent to $571.6 million in Q1 2008 compared to $483.9 million for the same period in 2007, while the number of deals declined by 11 percent to 34. This growth bucks the trend of overall U.S. venture capital investment in Q1'08, which declined by 7 percent to $6.5 billion.

Three cleantech industry groups accounted for the majority of the capital invested in the quarter. The Alternative Fuels group was the largest recipient of capital with $178 million invested -- 31 percent of the quarterly industry total. Energy/Electricity Generation group's investments represented 26 percent of the cleantech industry and totaled $148.3 million. Energy Efficiency group deals accounted for 20 percent of investment, netting $116.4 million for the quarter.

Cleantech investing also suggested that the industry is maturing as deal volume shifted from early-stage to later-stage investments this quarter. Early-stage deals, largely seed and first round investments, accounted for 37 percent of cleantech financings in Q1 '08, down from 51 percent in Q1 2007, but represents a consistent percentage of the total venture capital industry investments directed toward early-stage enterprises. Conversely, later-stage deals accounted for 43 percent of financing rounds, up from 24 percent in Q1 '07, reflecting the progress of technology development in existing cleantech companies.

The Energy Efficiency group contained two of the fastest growing segments this quarter. Year-on-year, capital invested in Power and Efficiency Management Services increased 454 percent to $66.5 million. The Efficiency Products segment grew by 148 percent to $49.5 million. BridgeLux, a provider of energy saving power-LED chips based in Sunnyvale, Calif., raised $40 million in the largest Energy Efficiency deal of the quarter.

Investments in the Solar segment, part of the Energy/Electricity Generation group, also grew by 136 percent over the last year to $132.4 million. A key deal in the solar category was Infinia, a concentrated solar company based in Kenniwick, Wash., that raised a $57 million round during the quarter. Reports of technology development and an increasingly supportive regulatory environment are attracting investor attention to this segment. For example, in 2007 four more states instituted mandatory renewable portfolio standards (RPS), bringing the total to 25 states and the District of Columbia accounting for 46 percent of national retail electricity sales, according to Lawrence Berkeley National Laboratories.

"While solar and biofuels investments continue to grow, we're observing increased investments in efficiency-related technologies as VCs balance their renewable energy portfolios with companies that have a shorter prospective time to exit," said Joseph Muscat, Americas director of Cleantech and Venture Capital, Ernst & Young LLP. "Efficiency technologies are less capital intensive than renewables, which enable more venture capitalists to participate in the cleantech industry," Muscat continued.

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