The Weeding Out of Green Finance: Blackstone Calls Off Fund

Amidst a host of new green technology funds being raised in the first quarter, here’s a reminder that greentech investing isn’t for everyone — at least, not for the Blackstone Group (s BX). The big investment firm is phasing out its undersubscribed green fund it started nearly three years ago, according to a report from Fortune this morning.
Apparently Blackstone wasn’t able or willing to drum up much interest in its green fund, which was targeting $500 million but raised just $90 million from Western European investors in the summer of 2010, Fortune reports. Blackstone declined to comment for the story, but a source told Fortune it intended to continue actively managing the green companies in its portfolio, which included Coskata, Pacific Biosciences and Rive Technology.
Blackstone isn’t exactly doing poorly — its stock just hit a new 52-week high, and its Strategic Alliance Fund, which raises money to “seed” new hedge funds, has raised about $355 million in the past four months. But apparently it has found that raising funds for green startups isn’t where it wants to be.
That could be because Blackstone’s green fund was targeting a challenging part of the greentech chain — the “capital gap” between early-stage VC funding and later-stage project financing. That funding is going to be critical for startups in solar power, electric vehicles, biofuels and other industries that require hundreds of millions, if not billions, of dollars to build factories, power plants and the other massive infrastructure.
Indeed, green investment has decisively shifted to such late-stage companies, according to recent figures from the Cleantech Group, which found that follow-on rounds accounted for $2.39 billion, or 93 percent of the $2.57 billion in green VC investment in the first quarter of this year.
But large follow-on rounds could indicate weakness, rather than strength, in the cleantech sector, as we pointed out in a Tuesday review of first-quarter investing. That’s because they underscore the fact that some startups that would have sought IPOs to raise that final round of cash to move to full-scale commercial status are being forced to return to existing investors instead as they wait for the economy to get better (see Neal Dikeman’s take on the Q1 numbers here).
Some of the biggest rounds of the first quarter — $201 million for solar thermal startup BrightSource Energy, $150 million for plug-in hybrid carmaker Fisker Automotive, $75 million for trash-to-biofuel startup Fulcrum BioEnergy and $50 million for cellulosic ethanol maker Mascoma — might be seen as falling into that category. Some of them can’t seem to get new equity investment — struggling thin-film solar startup Solyndra has gone back to existing investors for a combined $200 million in secured debt and convertible promissory notes, rather than equity, since it canceled its IPO last summer.
That doesn’t mean new funds aren’t being raised. In February, Israel Cleantech Ventures reported it had raised $55 million of a $100 million fund, and The Westly Group was reported to be looking to close a $175 million round. In March, $100 billion money management firm BlackRock and Irish clean power developer NTR launched an alternative energy investment group. VantagePoint Venture Partners has reportedly been raising a new $1 billion green fund.
Some of the new funds (particularly the strategic ones from corporates) are spreading the wealth amongst earlier-stage companies. In January, NRG Energy, Conoco Phillips and General Electric created a $300 million fund called Energy Technology Ventures, with plans to invest in about 30 “venture- and growth-stage” green energy companies. So far the consortium has invested in Alta Devices and CoolPlanetBiofuels, both seeking to bring untested technologies to scale.
But others are focused on the same late-stage game that Blackrock has reportedly pulled out of. In February, private equity firm Silver Lake launched its first clean energy fund with billionaire investor George Soros led by the crack greentech team of former Foundation Capital Partner Adam Grosser, and former Obama Administration energy official Cathy Zoi. According to Grosser, the new fund will be focused on growth scale financing and a global breadth of investment. (Hear from Grosser and Zoi at Green:Net 2011 on April 21 in San Francisco).
Image courtesy of Amber Strocel via Creative Commons license.