Green energy makes money
Venture investments in American clean technology firms reach a new high.
Venture investment in energy technology firms reached new highs this year, more than tripling the investment recorded for 2005, according to data released Wednesday by Thomson Financial and the National Venture Capital Association.
In the first three quarters of 2007, nearly $1.7 billion, or 7.4% of U.S. venture capital investments, was put into American companies developing technologies that conserve energy and resources, protect the environment, or eliminate harmful waste. The majority of this year's clean technology investment was made in companies based in California, Massachusetts, and Texas, with the solar energy and biofuel industries receiving the bulk of the investment dollars.
"This is a remarkable share of the venture capital pool when you consider that less than five years ago clean technologies represented less than 1%," says Rodrigo Prudencio, a partner with Nth Power, a California-based venture capital firm that backs early stage energy technology companies.
Annual venture investments in clean-technology companies went from $469.7 million in 2005 to $1.4 billion in 2006, and this year's total through September has already seen a 21% increase over last year. The number of investments made has also increased, with 149 deals made in the first nine months of this year, as compared to 129 deals at the end of 2006.
"Long term, this is an area that is going to be as important to the venture capital community as biotech and IT have been in the last twenty years," says Mark Heesen, NVCA president.
Behind this surge lie a number of factors. The emergence of the Indian and Chinese economies, both of which are consuming energy at a rapidly increasing rate, has drastically expanded the potential market for new energy technologies. Meanwhile, the combination of rising oil prices and environmental concerns has strengthened demand from policy makers and the public for alternative and more efficient sources of energy.
"The U.S. Department of Energy is coming round to the idea that small entrepreneurial companies have an important say in how our energy needs are going to be met in the next twenty years," says Heesen. "A couple of years ago, most people believed that the big utility companies could solve this problem on their own."
HelioVolt, an Austin, Texas-based producer of solar-absorbing film, raised $9 million in its first round of financing in April 2005. Two years later, its second round generated a total of $101 million -- the second largest investment in a domestic company by domestic firms in 2007. HelioVolt will use this financing to build the company's first full-scale production factory in the U.S. and to start co-manufacturing abroad.
"We're seeing a lot of money coming into this sector and venture capitalists who do not have a precise expertise in this particular arena, so the possibility of mistakes is greater," says Heesen. But if investors and entrepreneurs get it right, he sees the possibilities stretching into the future: "We can make money, hopefully do some social good, and create some long term successful businesses that will last."click here.