Lower Profile Cleantech Investors Still Out There Raising Funds

While some high-profile venture firms that moved from Internet investing to cleantech — like Kleiner Perkins — seem to be backing off a bit from their cleantech ambitions, there are still a lot of lower profile cleantech investors remaining steadfast. I read about two firms this week that are raising new cleantech-focused funds, and a third explained in an interview this week why it’s sticking to energy investing.

Israel Cleantech Ventures, which has backed startups like electric vehicle infrastructure company Better Place, lighting management company Metrolight, and solar software company Tigo Energy, is in the process of raising a $100 million fund, according to a filing this week. The firm that focuses on finding innovative Israeli cleantech firms has raised $55 million of the fund, with some $44 million left to go.

At the same time, The Westly Group — former eBay (s ebay) entrepreneur and California state controller Steve Westly’s investment group — is reportedly looking to close a $175 million, cleantech-focused, third fund by spring 2011. Some of the Westly Group’s previous investments have done pretty well, including IPOs from Tesla Motors (s TSLA) and biofuel maker Amyris Technologies (s AMRS).

The two planned funds are modest in size compared to some. Kleiner at one point in 2007/2008 was looking to invest one-third of a $600 million fund into cleantech ventures, along with a $500 million “Green Growth Fund” specifically targeted at growth-stage cleantech companies, as well as part of a $700 million fund for early-stage investments. Khosla Ventures has a fund over $1 billion, a large portion of which will go to cleantech firms.

An interview in Xconomy this week with Hemant Taneja, a managing director at General Catalyst Partners, sheds some light into why some VCs that moved into cleantech from IT are still sticking with it:

A ton of people jumped into the sector, and some investors got burned because they were looking at technologies that were way too risky for venture capital. Some of those folks are going back to IT—and it’s an interesting space … We are sticking to our allocation to energy. We’re optimistic the sector will be good for us.”

While investors don’t like to about getting “burned,” it has happened for some. The returns, if they happen, seem to have been stretched out over close to a decade, many times have required a lot more capital than VCs anticipated, and haven’t appeared to have delivered close to a VC-type return. Kleiner Perkin’s first cleantech investment — fuel cell company Bloom Energy — has raised over $400 million, is nine years old, and only launched out of stealth last year with a handful of customers. Thin-film solar maker Solyndra has raised close to $1 billion over its 6-year lifespan and pulled back on its IPO plans earlier last year.

The economics had gotten so difficult for some that according to a report in Reuters at the end of last year, there’s been a sharp decline in investing in early-stage cleantech companies because of the lack of returns for investors. VC investment overall fell in 2009 because of the recession, but investments in new, early-stage cleantech startups dropped even more compared to all investing: 35 percent of VC dollars went to early-stage and seed cleantech companies in 2007, but just 20 percent went to that group in the first half of 2010, reported Reuters (s tri).

There’s even been a trend of well-known web investors over the past couple of years noting “boy are they glad they haven’t been investing in cleantech.” Peter Thiel, co-founder of PayPal (s ebay) and partner with The Founder’s Fund and Clarium Capital, and Netscape founder and investor Marc Andreessen are just two who have expressed those sentiments.

At the same time, overall cleantech investing was actually up for 2010 compared to 2009, according to the Cleantech Group, and cleantech venture investments hit $7.8 billion globally, up 28 percent to the $6.1 billion in 2009.

Investor (and blogger) Rob Day thinks that the next wave of young cleantech venture firms is around the corner with new ideas about how to invest, and with knowledge of the mistakes that their senior peers have made:

Across the industry, in a lot of established generalist and cleantech-specialist firms, or having recently left them, there is a cadre of less senior investors who are bumping up against advancement ceilings at their current firms, and are thinking about what they could do in launching their own firm, alone or with others.

If the new wave is coming, I welcome them.

To learn more about new opportunities in digital energy or how information technology — from software to the Internet to wireless networks — can be used to make systems more efficient and to fight climate change, check out our Green:Net 2011 event on April 21, 2011 in San Francisco.

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Image courtesy of SqueakyMarmot.