Solyndra and the future of cleantech investing

When all was said and done, solar panel maker Solyndra raised over a billion dollars, making it No. 2 on the list of companies that have raised the most equity, according to a 2010 list from Dow Jones VentureWire. But unlike Facebook or MetroPCS, two other names on the list, it’s the only one that’s bankrupt. So with cleantech responsible for possibly the biggest venture disaster on record, it’s a good time to ask what the future of startup investing will look like in the green economy.

Overall venture capital investments grew 19 percent to $7.5 billion in the second quarter, but cleantech saw a 23 percent decrease, from $1.2 billion in the first quarter to $942 billion in the second quarter. Adding to that, the third quarter has seen a number of tech IPOs shelved due to the volatility of public markets, and you can see why firms like CMEA Capital, which raised $400 million in 2008 and backed Solyndra, reportedly has no plans to raise another fund.

GigaOM Pro’s Flash Analysis, which surveys both investors and those from the industry, showed that while there is some general negativity in the air, with 30 percent of investors viewing the environment for VC as being “in bad shape,” 43 percent of all respondents still thought there were attractive opportunities in greentech.

In the end, the troubles of the solar power industry are part of a maturation process that has gone on in cleantech investing over the past couple of years. Capital is harder to come by than it was between 2006 and 2008, and “science projects” — which are really basic scientific research and should be funded by the National Science Foundation, not venture capital  — are no longer fundable.

Solar power has always represented a bit of a quandary for venture investors. In order for solar panels to come down in price, some degree of commoditization needed to occur. This meant there could only be so much value in an exciting technology, because for the industry as a whole to succeed, much of the value would have to come from a company’s manufacturing process.

Venture firms are looking for clean technologies with clear products. A partner in the technology arm of a venture firm recently told me that his firm won’t go near anything that requires a lot of debt capital or building a new plant. Rather, he’s looking for cleantech companies with a product or a service that can be marketed through identifiable channel partners with clear end customers.

This shift in thinking is a reason that startups with software-based efficiency technologies will get traction, whether it’s a company like PowerAssure, which has an efficiency software package for data centers, or a home energy management software and service provider like EnergyHub, which raised $14.5 million last week. These companies are putting the IT in green IT by relying on software products to wring out energy efficiency. The development cycle is quicker, and there’s a clear product at the end.

Sources of funding for cleantech startups are shifting, too. As Kleiner Perkins partner Ray Lane recently indicated in an interview with Earth2Tech editor Katie Fehrenbacher, there’s a macro trend of LPs passing on new VC funds, and we’re likely looking at a reduction in the overall number of VCs. Fortunately, companies like GM and GE have decided to fund startups rather than do all of their R&D in-house. If the contraction in cleantech investing continues, startups will increasingly look to big companies for seed funding. Many of the Fortune 100 companies are sitting on the sidelines with record amounts of cash.

So while it can feel like pretty dark days out there, my sense is that the industry is growing up, not imploding. Because cleantech has had the strange coupling of subsidies with a moral imperative to help the environment, the thinking can stray from basic good business. Make a product that brings value to a clearly identifiable customer. Sounds easy, right?

Question of the week

What sectors will reap cleantech venture capital in the future?

From Recession to Recovery: Cleantech Companies Navigating Shifting Economy

After spending the better part of the last two years scrambling to survive the recession, the discussion has shifted for cleantech firms and companies are now trying to figure out the best way to manage the recovery. Investors expect the greentech industry to come out ahead and lead the economic rebound this year, according to a survey released last week by accounting firm KPMG. The survey found that 77 percent of respondents believe venture investments in green technology will increase this year after declining last year, while only 67 percent expect overall venture capital investment to grow.
Experts are anticipating a crop of cleantech IPOs this year, as well, while some, such as venture capitalist Vinod Khosla, are concerned that some greentech IPOs this year may disappoint investors and sour the market for other green IPOs. Stimulus programs, such as the new round of ARPA-E funding announced last week, also are shifting the financing landscape, leading to new tactics as companies try to leverage government funding to advance over competitors.
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CMEA’s Maurice Gunderson Talks Tactics

As the stimulus and the recession both leave marks on the cleantech industry, cleantech investors, along with entrepreneurs, are adjusting to a new landscape. And CMEA Capital is one venture capital firm that seems to be navigating it successfully, so far. The company backed A123Systems, the lithium-ion battery manufacturer whose much-celebrated initial public offering surpassed expectations in the midst of an IPO drought in September, as well as Solyndra, the thin-film solar startup that received the first renewable-energy manufacturing loan guarantee from the U.S. Department of Energy.
We recently sat down with Maurice Gunderson, senior partner at CMEA, who previously co-founded venture-capital firm Nth Power, to discuss his thoughts on the future of the greentech industry, and the how CMEA – and its portfolio companies – are prepared to thrive in the new economy. Here are some excerpts from our conversation:
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The Largest Cleantech VC: China

When private investment in cleantech fell last year, government stimulus programs more than made up the difference, according to estimates that the Cleantech Group released at the Cleantech Forum in San Francisco this week. And no government is doing more to fill the gap than China’s. China has set aside a whopping $200.8 billion in stimulus funding for cleantech, 79 percent more than the $112.2 billion the U.S. stimulus funds have allocated to the industry, according to the latest Stern report released last year. (Estimates of U.S. green stimulus funding have varied broadly, with many ranging between $50 billion and $80 billion as of last year with $36.7 billion allocated to the Department of Energy.)

A chart that Sheeraz Haji, president of the Cleantech Group, presented Thursday shows that while worldwide private investment in cleantech fell below $150 billion in 2009, from just above $150 billion the previous year, global stimulus spending added an estimated $76 billion to the total pool of cleantech funding in 2009 and is expected to reach $182 billion this year (see chart, above). The chart is based on analysis from the Cleantech Group, as well as numbers from the World Economic Forum, the International Energy Agency’s World Energy Outlook, Bloomberg’s New Energy Finance and HSBC.
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Schooner Launches Specialized Servers for Speedy Data Delivery

schooner-appliance-4-8-09Schooner Information Technology, a 2-year-old year old startup in Menlo Park, Calif., today came out of stealth mode with an appliance designed to speed up the transfer of information. As online data becomes more prevalent and the patience to wait for that data wanes, the company is offering a machine that’s purpose-built to speed up memcached and MySQL for web-scale applications. This means faster-loading photos for a site like Facebook and faster access to databases for serving up other information online. Read More about Schooner Launches Specialized Servers for Speedy Data Delivery

How to Build a Financial Crisis-Proof Business

We’ve written recently about how bootstrapping founders can help themselves navigate a very tight credit market. Now, the implosion of the investment banking industry promises to level what was left of the landscape for both IPO and M&A exits. Startup founders would be wise to reassess their strategic priorities.

With fewer opportunities to cash out of their current and future portfolio companies, the agendas of angels and VCs will also shift. Founders who are raising funds will certainly want to revamp their pitch decks, if they are to have any success raising capital in the current climate.

But how? What should a startup founder put on that slide in their investor presentation that addresses potential future outcomes? How can founders adjust their messaging to demonstrate to VCs that they have their strategy aligned with the needs of the investing community now? We asked Faysal Sohail, the managing partner with CMEA Ventures, for advice. Here’s what he had to say. Read More about How to Build a Financial Crisis-Proof Business