Are venture capitalists sheep? Why cleantech investing is down

There’s been a spate of bad news for cleantech investing lately — venture capital dollars going into the U.S. cleantech companies have been slashed by half in the last year, and the global investment outlook is also down 30 percent compared to last year.

Those are some pretty sharp declines. Why? Well, it appears that venture capitalists are sheep. In 2007, money was cheap, and VC stars like John Doerr of Kleiner Perkins and Vinod Khosla of Khosla Ventures were making some big plays into cleantech.

Other firms quickly followed suit, according to Battery Ventures vice president Mike Dauber, who I spoke to last night at the GreenBeat 2010 conference. They were fearful of missing out — a sheep-like mentality he likened to “This area’s hot…We need to have something in play.” The problem is, the investing was fueled in part by giddiness and led to people inexperienced in cleantech rushing into the game.

“There’s been a bubble in cleantech. That doesn’t mean the opportunities have gone away,” said Maurice Gunderson, CMEA Capital senior partner, in an earlier interview with VentureBeat. “What we have seen over the last five, six years is a great deal of capital … from investors that have no experience in it. Where you see the mistakes made are people who don’t have experience in this field.”

Everyone’s made mistakes, Dauber said — including Battery. Dauber said he’s now focusing on less capital-intensive, more IT and grid technology-type cleantech companies like Smooth-Stone, a low-power data center chip maker, and Redwood Systems, a company that makes networked lighting for data centers — a process that builds a network of sensors that can gather useful data about energy use, which can be used for smart building and smart grid applications. Redwood recently raised $15 million; Smooth-Stone recently raised $48 million.

Just as Gunderson hinted, VCs are also going back to “what we know,”  Dauber says — hence the IT-type investments.

Capital-intensive cleantech companies are now likely seeing a chillier environment for funding. Solar panel maker Solyndra may be one of them — the company nixed its IPO earlier this year and this week said it would close its first factory — for which the Department of Energy granted a flagship $535 million conditional loan guarantee.

In an interview last month with VentureBeat, Peter Moran and Tom Blaisdell — general partners at venture capital firm DCM — also weighed in on why there’s been a decline in cleantech dollars. The lack of exits has been a big reason. “This is time for a breather, for people to say, ‘Okay, we put a lot of seeds into the ground, let’s wait for some of those to come [up] before we put more seeds in the ground,’” Moran said.

“It got very trendy to invest in cleantech,” Blaisdell added. “A lot of money went into projects, many on the value proposition that people want to be green, want to pay more for LEEDs-certified buildings. [There’s] rethinking on whether those are going to be the best-returning investments.”

Of course, being a risk-taker is part of a venture capitalist’s job. Given this mini-crash of VC dollars going into green, industry watchers can only hope that they’ll keep taking risks in the future — just smarter ones. You know how the old saying goes: Once burned, twice shy.

[Image via imagesfrombulgaria]