TechPulse 360

U.S. venture firms are taking a more circumspect view of clean-tech investing. Less flash, more focus on profits.

That could lead to more start-ups trying to build businesses with less money.

According to a recent survey, substantial sums of money continue to flow into the industry. Ernst & Young reported Monday that $2.6 billion went into clean-tech start-ups last year, a noticeably more optimistic assessment than last month’s MoneyTree survey, which posted a figure of $1.9 billion. The higher sum suggests VCs were significantly more active last year than may have been thought.

The E&Y work also uncovered a second detail that didn’t show up in the MoneyTree study – which was conducted by PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters.  While investment dollars fell 45 percent in the fourth quarter, the number of deals were up – 21 percent to 62. More deals, smaller sums of money per company, more room for profits.

The MoneyTree work found that the number of deals in the quarter fell to 47 and that overall dollars declined 58 percent.

It is hard to know which of the surveys is more accurate. But the prospect of venture capitalists funding more companies at lower dollar values is interesting to contemplate. It suggests funds are seeing clean-tech investing more like they see information-technology investing: put a little money in, expect a lot back.  This prospect may encourage more VCs to take part.

Of course the shift to small deals is due in substantial part to the maturing of solar start-ups. In recent years, these companies needed large sums of money for manufacturing plants, and VCs were eager to provide them. That cycle is winding down. New solar ventures still get money, but in small allotments to explore new technologies.

At the same time, venture interest in clean tech has shifted to energy efficiency. It is here that small investment sums can start companies eager to develop, for example, software for energy management.

In the fourth quarter, energy efficiency received more money than any other category of clean-tech investing: $253 million. That total was inflated by the $105 million investment in smart meter maker Silver Spring Network. By even without Silver Spring, 21 deals were done, about a third of the total.

As venture capitalists look toward 2010, expect to see more funds using the game plan of the past. Dole out money slowly. Spread it around. Find ways to make each dollar go further.

This entry was posted on Monday, February 8th, 2010 at 2:31 pm and is filed under news. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.