Who will fund the next wave of clean tech companies? A new report put out by Venture Capital Journal states that venture capital firms are investing less in early-stage clean tech firms. Instead, angel investors are stepping up to the plate to boost necessary dollars into the emerging industry.
According to the study, venture capital dollars in seed stage and early stage clean tech companies in 2007 equated to $886 million (about 35% of total venture capital spending reported). In 2009, that number is down to $424 million (about 20% of total venture capital spending reported).
What’s holding the VC industry back?
It appears that VCs see too much of a technology risk associated with early stage clean tech companies. In contrast, companies that are in a later stage of development are likely to have better success in securing venture capital dollars, such as BrightSource Energy, Better Place, and Fisker Automotive.
Angels investments may be a more reliable source for funding early stage companies. According to the University of New Hampshire’s Center for Venture Research, clean tech companies received 17% of all angel investments last year, up from 8% in 2008.
Perhaps a major reason venture capitalists are spending less money in clean tech companies is because they are focused clear exit strategies in the short-term. Angel investors, on the other hand, may recognize that early, patient capital will yield the greatest profit in the long-term.
For those in the investor communities, it is important to keep in mind that this is a steady, slow-growth industry whose full potential is not yet fulfilled. With the expected rise in prices for petroleum in this decade and the next, in conjunction with increased demand for energy, we are sure to see the clean tech industry expand significantly in the coming years. VCs need to recognize that when it comes to clean tech, Smart $=Patient $.
Shannon Arvizu, Ph.D., is a clean-tech educator and strategist. Learn more at MissElectric.com.