Record $7.8 billion year for cleantech venture capital in 2010, but two quarters of decline

Cleantech had a record year in drawing in venture capital in 2010, with $7.8 billion invested globally, according to a new report from the Cleantech Group. The last half of 2010 saw two consecutive quarters of declines, however.

Overall, global investing totals saw a 28 percent increase compared to 2009, making it the highest year for investment after 2008 ($8.8 billion). The drawback in the last half of 2010 seems to reflect some skepticism among venture capitalists on capital-intensive investments that are risky and can take years to bear fruit. Instead, investors are looking more towards capital investments like energy efficiency. One company that has done well in that space is Opower, which recently raised $50 million in a round led by Accel and Kleiner Perkins.

Venture investment in the fourth quarter of last year totaled $1.61 billion, down by 17 percent from the third quarter ($1.95 billion), marking the second consecutive quarterly decline in investing in cleantech. There were 180 deals, the same number as in the third quarter. In November, the Cleantech Group found that VC dollars flowing into cleantech in the third quarter of last year went down 30 percent compared to the previous quarter.

An Ernst & Young report last year found that U.S. venture capital dollars in the third quarter were half of what was invested in the third quarter of 2009, reflecting a 22 percent decrease in deals in an overall $575.6 million in 53 financing rounds.

“Venture funds are still in a cautious place” as they continue to try to raise money for their own funds, said Sheerez Haji, CEO of Cleantech Group. That makes it hard for early-stage startups, as investors look for later-stage companies where “the technology risk has been taken care of,” he said.

In fact, one of the capital-intensive investments and success stories of last year is a good showcase of how pricey projects must draw from funding sources beyond venture capital. That’s BrightSource Energy, the company behind a massive 392-megawatt Ivanpah solar thermal plant in California’s Mojave Desert, recipient of a $1.4 billion Department of Energy loan guarantee and said to be preparing an IPO this year.

The company raised cash from traditional venture capital funds like Draper Fisher Jurveston and VantagePoint, but also corporations like Chevron, BP and Google. It also got funding from California teacher’s retirement system fund Calstrs and infrastructure company Alstrom.

Overall, venture capital in North America totaled nearly 70 percent of all the venture capital invested globally in 2010, with dollars invested surging 45 percent to a total $5.28 billion. Big deals included solar manufacturer Solyndra’s $175 million raised in the wake of a pulled IPO, $350 million raised by electric vehicle infrastructure startup Better Place, $150 million raised by BrightSource Energy, $110 million raised by Abound Solar and $165 million raised by Switzerland’s smart meter company Landis + Gyr.

IPOs had a record year as well, with eight of the 10 top IPOs in China worth a combined $10 billion. The country is emerging as a huge energy market with lots of opportunity for cleantech companies. It has pledged over $7 billion to smart grid alone and continues to subsidize solar panel manufacturers that have undercut global competition in price. The top IPO of the year was the $3.6 billion offering in Madrid by the renewable energy unit of Italian utility Enel Green Power, the renewable energy unit of Italian utility Enel.

Cleantech Group analysts are bullish on the cleantech IPO market for 2011, saying this could be the year much-speculated Silver Spring Networks goes public. Car sharing startup Zipcar has also filed to go public.

The smart grid market continues to be strong as utilities look to invest in the segment and with huge market opportunity in China.

“These will be huge monster markets with plenty of room for startups and big companies like GE and Siemens and Schneider Electric,” Haji said.

The most active cleantech venture capital investors of last year, according to the report, were:

Chrysalix Energy Venture (16 rounds)

Draper Fisher Jurvetson (16 rounds)

Carbon Trust Investment Partners (12 rounds)

Element Partners (12 rounds)

Kleiner Perkins Caufield & Byers (12 rounds)

[Top image via Flickr/davedehetre]