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U.S. venture capital (NYSE:VC) investment in cleantech companies in 3Q10 fell to $575.6 million in 53 financing rounds, a 55% decrease in capital and a 22% decrease in deals compared to 3Q09, according to newly released figures.
Ernst & Young LLP assembled the analysis based on data from Dow Jones VentureSource.
"This quarter reflects the ongoing volatility in cleantech investment that we have observed over the past two years, depending on the presence of the very large transactions we see in cleantech," said Jay Spencer, Ernst & Young LLP's Americas Cleantech Director. "However, a number factors point to the continuing strength in the U.S. cleantech sector, including growth in Energy Efficiency investments and corporate involvement throughout multiple industries--from utilities to technology to consumer products."
Later stage financings predominate
Later stage venture financings continued to drive U.S. cleantech investment. There was $407 million invested in 25 later stage deals, which accounted for 48% of deal activity and 70% of capital invested. The Industry Products and Services segment saw the greatest number of later stage rounds, with nine transactions raising $99.5 million.
Energy Efficiency gains in both financing rounds and capital invested
The Energy Efficiency segment attracted the most financing activity with 17 deals raising $161.7, increases of 21% and 6%, respectively. The largest deal in this segment was closed by Smooth-Stone Inc. a developer of low-power data center chips based in Austin, TX, which raised $48 million. Large corporate investments in Energy Efficiency technology also shaped Q3 '10 investment trends. GE (NYSE: GE) announced plans to invest $432 million over the next four years to research, design, and manufacture energy efficient refrigerators in the U.S.
Energy/Electricity Generation—smaller, early stage deals
While deal activity in the Energy/Electricity Generation segment grew 27% to 14 rounds, capital invested fell 39% to $203.9 million as investors focused on smaller, earlier-stage deals, including two seed round, two first rounds and five second round deals. Solar companies represented the majority of investments in this segment, with 10 deals raising a total of $150.1 million. The largest deal of the entire quarter was a $65 million third-round later stage deal by Solaria Corp., a Fremont, CA developer of solar photovoltaic solutions.
Sizeable corporate investments in Energy/Electricity Generation companies are helping advance the US cleantech sector. For example, NRG Energy, Inc. (NYSE: NRG) agreed to pay $350 millionfor Texas-based Green Mountain Energy, an alternative energy generation and distribution company, while the Sharp Corporation (6753.T) announced a $305 million purchase of Recurrent Energy, a California-based photovoltaic power project developer.
Other cleantech segments had a challenging quarter. Investment in the Industrial Products segment fell 72% in terms of capital to $116.9 million and 50% in term of financing rounds to 12. The Alternative Fuels segment raised $50.5 million in three deals.
Strong corporate engagement
Approximately 23% of the VC cleantech deals in 3Q10 included participation by corporate investors, including BASF Venture Capital GmbH, Intel Capital and General Motors Venture Group, which all did two deals apiece. Corporate investor participation increased from 15% in 3Q09. Another indicator of corporate interest in cleantech was GE's announcement of a $200 million smart grid fund along with Emerald Technology Ventures, Foundation Capital, Kleiner Perkins Caufield & Byers, and Rockport Capital.
Cleantech momentum in other asset classes
U.S. mergers and acquisitions activity in 3Q10 was reflective of the corporate engagement in cleantech investment. Nine deals closed, of which the disclosed amounts totaled approximately $1.9 billion, according to IHS Herold. These deals include the acquisition by Nebraska-based ethanol producer Green Plains Renewable Energy (Nasdaq: GPRE) of Global Ethanol, LLC, of Minneapolis, MN for $166.4 million.
Two cleantech initial public offerings took place in the US during 3Q10, according to Bloomberg New Energy Finance: Ameresco (NYSE: AMRC), an energy efficiency and renewable energy company in Framingham, MA, raised $87 million; and biofuels developer Amyris Biotechnologies (Nasdaq: AMRS), based in Emeryville, CA, raised $84.8 million. Companies that have announced or filed for IPOs during the quarter include Gevo Inc., SemiLEDs, Molycorp, and PetroAlgae.
Regionally, California experienced a significant decline in investment, with deals falling 44% to 21 and dollars falling 71% to $295 million. In comparison, California had five deals over $50 million one year ago, including the $286 million financing of Solyndra.
Massachusetts came behind California with eight deals and $87.6 million, a 50% increase in deals and a 65% increase in capital invested compared to 3Q09. New Hampshire and Texas followed with investment of approximately $50 million each.
Disclosure: no positions