According to Eric Straser, a partner at Mohr Davidow Ventures and a pioneer in cleantech investing, “In 2009… cleantech…is now garnering nearly 20 percent of all dollars invested by VCs. In 2010, we’ll see public investors get into the action with several IPOs…”
So what VC trends should be influencing the development of your investment strategy?
In 2009, solar was the number one investment category for VCs, with Greentech Media Inc. reporting that over 25 cents of every VC dollar was invested in a solar related technology covering a total of 84 separate deals. Further evidence of the solar industry’s maturation are two deals closed in 2009 where Solel, a solar thermal power components vendor, was acquired by Siemens for $418 million and MEMC acquired Sun Edison, a solar Power Purchase Agreement pioneer, for $200 million.
The financial analysis and research data I am privileged to see offers these conclusions:
- Solar prices continue to decline. Panel prices are about half what they were only a few years ago and numerous early stage companies have technology goals for achieving grid parity pricing levels.
- Demand for solar continues to grow. Consumer demand for solar continues to grow as solar moves toward pricing parity with grid supplied electricity. The current federal stimulus program is greatly enhancing solar’s economic attractiveness through cash payments, rather than tax credits. The growing list of local incentives is also sparking consumer demand. While solar remains a government subsidized market, 2009 investments by VCs represents their expectation of a future where solar power will be price competitive without subsidies.
- Balance of plant costs and red-tape are now the cost barriers. Today in California, the documentation costs demanded by the utilities and regulators is equal to 60 percent of panel costs. Overall, balance-of-plant costs (labor, infrastructure and documentation) are more than the cost of the panels. This has sparked a major industry focus upon finding technologies and processes to push balance of plant costs down the same declining path that panels are achieving.
Beyond solar, VCs expanded their investments into 19 different cleantech investment categories. Investments were made in biofuels, smart grid, batteries and green buildings/building materials. For example, Google Ventures, Foundation Capital, Kleiner Perkins and Northgate Capital invested $100 million into Silver Spring Networks that is pioneering smart metering with millions of their metering technology being installed today in California. Another example is Mesirow Capital’s participation in a $60 million funding of Serious Materials , a company that is pioneering U.S.-based manufacturing of green building materials.
Batteries were another VC focus in 2009, with $455 million invested in 36 different companies. Peter Nieh, managing director and a founder of Lightspeed notes on his blog, “Nearly every major carmaker claims it will launch a plug-in hybrid electric vehicle (PHEV) or all-electric vehicle (EV) some time between 2010 and 2013, as concept cars start to become production models. Notable target launches for 2010 include the Chevy Volt and Nissan EV-02. Numerous startups will also look to enter the market…” Nieh cites this example, “Leyden Energy (formerly Mobius Power, a Lightspeed portfolio company) is bringing to market Li-ion batteries that offer the high energy density that is critical for EVs, while providing a high degree of safety and long cycle life over a wide operating temperature range. We expect there to be some healthy competition and progress made here in 2010.”
Finally, 2009 was a year that saw the development of strategic alliances between VC funded biofuel technology companies and larger, established institutions. Nieh notes, “LS9 and Solazyme (Lightspeed portfolio companies), for example, have teamed up with established giants like Chevron, Proctor [sic] & Gamble, and the U.S. Navy to further their development efforts.”
In summary, what I saw in 2009 was a massive swing in focus by VC funded cleantech from “we can create a clean product” to “we know how to be price competitive.” It is this trend toward cleantech price competitiveness that produced my economic analysis of a $10 trillion global annual revenue sustainable economy by 2017.