Venture Funds Turn to Cleantech
Investors see profits in solar power, renewable fuels, and energy storage

By Melody Voith
C&EN;
February 11, 2008

SOLAR PIONEERS invited the neighbors over to show off their rooftop panels and explain how they convert sunlight to electricity. Thanks to venture capital investors, those who want to convert sunlight more directly into money will soon have many new options. Venture capitalists predict that green start-ups will constitute their highest growth sector in 2008, and some of those companies will become part of tomorrow’s stock portfolios.

lready in some stock owners’ portfolios are SunPower and First Solar, two of several solar companies that issued initial public offerings (IPOs) in 2005 and 2006. These successful IPOs have helped turn on a sudden flow of money into what is being called the “cleantech” sector. In 2007, U.S. cleantech venture capital investments increased 46%, to almost $2.2 billion, compared with 2006, and the National Venture Capital Association (NVCA) predicts another banner year in 2008. Though solar and other energy technology companies have received the most investment, cleantech encompasses a wide range of industries including energy storage, environmental monitoring, electric cars, and energy-efficient building materials.

“Cleantech is the fastest growing venture asset class,” says Ira E. Ehrenpreis, general partner and head of the cleantech practice at Technology Partners, a venture capital firm in Palo Alto, Calif. “Venture capital had been focused on IT”-information technology-“and life sciences, but now there is a new, third pillar.”

Ehrenpreis attributes the rise of cleantech to the convergence of several factors. One is the recent history of successful solar company IPOs, which have helped build confidence in cleantech among investors. To venture capitalists, successful IPOs and acquisitions-called “exits” in industry parlance-prove the worthiness of investments that like any business start-up entail a great deal of risk and market uncertainty.

In addition to rising interest in solar power, Ehrenpreis points to megatrends including a change in the political climate, new attitudes toward environmental issues, globalization, increasing demand for energy in India and China, and a strong interest in cleantech by large corporations, both as investors and as acquirers of companies.

As the public hears more evidence of global climate change, investors predict that Republicans and Democrats will follow the voters and focus on environmental issues. The Cleantech Ventures Network, a professional organization with more than 8,000 investors, observes that “opinion polls show rising public concern about global warming and energy security. Investors, sensing the level of public interest in these stories-and therefore an opportunity in the market-are beginning to invest in industries that reduce human impact on the ecosystem.”

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