Has the ongoing recession dampened your spirits?
It probably has, as it’s affected everything from stalwart automakers to commodity prices to home sales to unemployment. But despite a few delayed and canceled downstream projects (steel in the ground) due to limited credit, the cleantech sector has been largely unaffected when it comes to funding in the earlier rounds.
A recent survey by the National Venture Capital Association (NVCA) revealed that 400 venture capitalists expect investment at the venture level to wane in every sector but cleantech.
Sounds like we have a bull here.
The Bull in the Venture Shop
According to the NVCA survey, venture spending is expected to decline in the semiconductor, media and entertainment, and wireless communications sectors. The drop-off isn’t monopolized by the U.S.; drops will also occur Israel, India, and China, but “the outlook is particularly grim in Europe.”
To illustrate the coming ebb, Venture firms are expected spend nearly $30 billion in 2008. Most of those surveyed saw 2009 spending no higher than $27 billion.
Yet there’s a bright spot. Here is, perhaps, the best line in the entire report:
“Despite lower investment predictions across all industry sectors, clean technology is viewed … as potentially growing in 2009.”
That sentence spews validation. It rolls off the tongue with a certain I-told-you-so quality. And it should make a lot of investors very happy. Not because all of us are going around slapping down millions at the venture level, but because venture spending is an overall indicator of the health of a sector.
If this is any indication, cleantech is, and will be, very healthy.
Just last week Ernst & Young released its year-to-date analysis on venture activity. In the first three quarters of 2008, venture firms have dumped $4.6 billion into cleantech companies in the U.S. Europe, China, and Israel–13% of all venture capital for the year, and an 82% rise compared to the first three quarters of 2007.
With the rest of the world quickly gaining on us, the U.S. remains the hotbed of activity, with $3.3 billion invested so far this year–a 71% increase over last year. Europe’s clean venture spending grew 67%. Israel’s jumped 218%. China’s surged a whopping 567%.
All this at a time when credit and capital are supposedly tight and the spigots have been reportedly shut -off.
Cleantech to Lead Economic Recovery
It seems counterintuitive that at a time when world-wide recession has been declared, banks are failing, and global stocks markets are in continued decline, that one sector can shine so brightly. But with international political and financial communities rallying around it, cleantech may just emerge as the solution to, rather than a victim of, this economic turmoil.
By now you’ve heard about the new economic stimulus being formed by leaders of Congress and the President-elect. At last tally, the price tag on that stimulus is topping out at $850 billion, though some experts say upwards of $1 trillion is needed.
The bulk of that money, as indicated by Mr. Obama himself, will go to infrastructure projects that fall in the realm of electricity transmission and energy efficiency. This has led to emergence of numerous titles for this pending piece of legislation like “The New New Deal,” “The Green New Deal,” and the “Green Recovery.”
All that venture spending so far this year is about to be dwarfed by government investment at the federal level, but it’s certainly not for naught.
Firms that are now part of early-round funding will find it easier to migrate to the commercial level with renewed support from the government and institutions. And existing commercial companies in the sector will find buoyed balance sheets as new projects are funneled their way.
EU leaders recently sealed an ambitious global warming deal that included a $264 billion economic crisis pact. They dubbed it the “transatlantic recovery plan,” and made a personal phone call to Mr. Obama urging his cooperation and participation.
That piece of legislation calls for cutting EU greenhouse emissions by 20 percent from 1990 levels by 2020. That’s among the most ambitious climate goals in the world, and Mr. Obama has similar ambitions for the U.S.
China is using cleantech to defy the markets as well. Recently realizing that they spend 7-10% of their GDP on environmental damage each year, which is the same as their economic growth rate, China has enacted its first Renewable Energy Law, requiring 15% clean energy by 2020.
Cleantech is making its mark on the world. What was once a niche industry, with a questionable future and plenty of naysayers, is now being looked to as the global economic savior.
Against all odds, and with plenty of remaining headwind, cleantech may be the new recession-proof, if not recession-busting, sector.