Green is good again: Cleantech venture funding continues its rebound

Cleatech is back in vogue, and financiers are jumping to get back into the green game. The latest quarterly cleantech funding numbers, released Tuesday by consultancies the Cleantech Group and Deloitte, show that preliminary results for the third quarter -- tallying clean technology venture investments in North America, Europe, China and India -- totaled $1.59 billion going to 134 companies. That's a 10 percent increase over the second quarter.

The improvement was fueled by a wave of big venture capital financings, and the successful IPO of battery company A123 Systems (AONE) helped the cleantech sector continue to rebound in the most recent quarter. The U.S. stimulus package also helped VCs make up their minds when placing big bets.
"The two largest venture deals -- Solyndra and Tesla Motors -- and the largest IPO -- A123Systems -- this quarter were all recipients of U.S. government funding," says Dallas Kachan, managing director of Cleantech Group. "Hundreds of millions of dollars in new venture funds this quarter are also evidence of investor confidence and momentum, including $1.1 billion in two new funds by Khosla Ventures alone.

The solar sector led all areas of cleantech, weighing in at $451 million in total venture funding. Next was transportation (vehicles, biofuels, advanced batteries) with $383 million, and green buildings and construction materials with $110 million in funding. The quarter was something of a watermark for the green-building space, with hot startup Serious Materials showing up for a $60 million round -- among the largest in the space for an early-stage company.

All positive vibes aside, venture funding for cleantech remained 42 percent below the same quarter in 2008, when the venture markets were positively frothy in comparison. Funding for solar and transportation remained anemic compared to the same period last year. Still, many VCs who had been talking survival are now eyeing possible IPOs for their revenue-producing greentech companies.

"A valuation event like A123 gives people hope," said Parker Weil, co-director of the Merrill Lynch and Bank of America's North America Energy and Power Group, at the 2009 REFF Conference in San Francisco on Tuesday. "The IPO market has clearly reopened."

That A123 was able to make such an impressive debut, considering the uncertain prospects for future profits, implies that the public equity market appetite for risk has re-emerged. With carrots like A123 luring them out of their holes, it's no surprise that venture capitlists are once again willing to nibble on investments in greentech that offer the sweet taste of future exits and rich payoffs.
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