TechPulse 360

Venture capitalists invested $4.8 billion in 637 startups during the third quarter, according to Tuesday’s MoneyTree survey.

This is a 17 percent increase in dollars from the second quarter, but a 3 percent decline in the number of deals, said the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters, who compile the study. What’s the explanation?

The risk profile is changing in an industry where winning investments will need to bring in more dollars

It turns out the bump in dollars is the result of several large investments in clean tech startups, including the ninth largest deal completed since 1995.

In other words, the practice of doling out small sums of money to adventurous software startups or Internet gurus with the latest Twitter-like plan is changing. Venture capitalists are becoming more accustomed to dishing out the big sums to companies building solar plants, ethanol facilities or battery ventures that ultimately require substantial manufacturing lines. It is a big change in an industry where investment rounds have been falling and risk taking subsiding.

Here is the lay of the land from Mark Heesen, president of the NVCA:

“The third quarter illustrates a gradual and deliberate industry shift towards a longer term venture capital investment strategy, Venture capitalists are becoming increasingly focused on industry sectors which require multiple rounds of financing for an extended time horizon.  Companies in areas such as clean technology and life sciences require significant capital and expertise often over a 10 (to) 12 year period, resulting in more follow on rounds, higher average investment levels, and a longer average time to a successful exit.  This is not to suggest that the venture capital industry will abandon shorter term IT investment.  Rather, the mix of investments will become much more balanced.”

If this is true, it is a sign a greater share of investment portfolios will shift to clean tech and that investment returns will need to be measured over an increasing number of years. It also suggests that paybacks – either through IPOs or M&A takeouts – will have to be larger to satisfy meat-hungry general partners.

Both will hike risks in an industry facing massive consolidation and a shirking ability to raise funds. So hold onto your hat!

Here are the top three (large) clean tech deals for the third quarter: Solyndra of Fremont, CA, $286 million; Tesla Motors of San Carlos, CA, $82.5 million; and Serious Materials of Sunnyvale, CA, $60 million.

Just today, the National Venture Capital Association released its VC investment survey for the third quarter.

Three organizations reporting, three widely different reports

Clean tech? Up 89 percent from the second quarter to $898 million. That is still down 17 percent from last year, but a heck of a lot better than the $415 million reported last week by Dow Jones VentureSource.

And both are a world away from the $1.59 billion that the Cleantech Group said early this month was invested by venture capitalists worldwide during the three months.

All three groups bring reputable firepower to help collect the numbers. The Cleantech Group uses Deloitte while the NVCA harnesses the services of PricewaterhouseCoopers and Thomson Reuters. Dow Jones, of course, relies on the corporate counting skills of Dow Jones.

So what explains the differences? Likely a matter of definition over what to categorize as clean tech v. high tech or biotech. The three disciplines are increasingly colliding. So who should readers believe? How about an average of the three?  That would equate to $967 million invested in 71 startups (an average of the NVCA’s 57, VentureSources’s 23 and Cleantech Group’s 134).

Still a bit of an uptick from the second quarter and sign of a slowly mending business.

Here are the top four clean-tech deals for the quarter from the NVCA (see all the details on the organization’s web site): Solyndra of Fremont, CA, $286 million; Tesla Motors of San Carlos, CA, $82.5 million; Serious Materials of Sunnyvale, CA, $60 million; and Kosmos Energy of Dallas, $56.5 million.