A new analysis by Ernst & Young reveals where US venture capital for green projects is now being directed. In the first quarter of this year, venture capital investment into clean technology companies by US firms has increased by about two-thirds since the economic dip of early 2009. It was largely driven by electric vehicle deals. The industrial products and services category received the largest amount of capital invested, $261.7m in the first quarter of 2010, representing a year-on-year increase of 490% attributable to large financings of California-based electric vehicle manufacturers Coda Automotive and Fisker Automotive. Tesla Motors has also been heavily funded from startup so it is now referred to as a plausible "America's fourth car company".
This contrasts with the situation in Europe, where large corporations such as Adam Opel, Siemens, EADS and Daimler AG fund their own electric vehicle and electric vehicle component development, the smaller companies receiving only modest funding. In Japan a similar situation exists with Toyota, Mitsubishi Electric and many other giant corporations placing almost all the investment internally.
US venture capital investment in the sector in the first quarter of fiscal 2010 hit $733.3m, representing a remarkable 68% increase in capital and 118% increase in deals compared to the first quarter of 2009. Data from Dow Jones VentureSource showed that the venture capital investments were made in 72 financing rounds, represent a 6% decline in funding and 1% decline in financing activity since the final quarter of 2009 but this is probably just noise on the system. Indeed, Ernst & Young said cleantech investment is recovering faster than overall venture capital investment, which increased a powerful 11% from the first quarter of 2009 to $4.7bn. In the first quarter of the year, the total share of venture capital invested in cleantech reached 16 per cent.
Early-stage venture financing was very robust in the latest quarter as 34 seed and first rounds represented 49% of financing activity, the highest percentage since the fourth quarter of 2008.
"With rising oil prices and growing signs of economic recovery, particularly in Asian markets, the drivers for cleantech remain strong," said Gil Forer, Ernst & Young's global head of cleantech. "Given that the majority of government stimulus funds have yet to be deployed...we expect increased activity in coming quarters."
Reflecting broader trends, energy efficiency companies accounted for the largest proportion of early stage investment, being the benefactors of 41% of seed or first round investments. Companies in the energy efficiency clean technology category also garnered the greatest number of deals, securing 20 in the first quarter of 2010, continuing a trend that emerged in 2009, reports Ernst & Young. Activity in the segment represented 28% of quarterly financings - a staggering 100% increase over the same period of 2009.
The third largest segment was the energy generation category with money raised increasing by 30%. Solar investment showed a 233% increase since the first quarter of 2009 to $159.9m in the first quarter of 2010. VC funding of the solar sector dropped to just $238m in the fourth quarter of 2010, hitting an industry-wide slow-down.
Solar VC funding levels also dimmed in early 2010, coming in at $311m during the first quarter.
US venture capitalists made 87 per cent of the transactions recorded in the first quarter of 2011, while 89 per cent of the recipient solar companies were also based in the country.
"Looking at the first quarter funding activities, it is clear that VC investor's appetite for solar has not gone away. In fact, this was the best VC funding quarter since the second quarter of 2010 and the second best quarter since the fourth quarter of 2008," said Raj Prabhu, managing partner at Mercom Capital Group. "When it comes to VCs investing in solar, the US continues to dominate."
The federal government and utilities are playing particularly important roles in moving solar developments forward, reported Ernst & Young. Target Partners is an example of a VC in this space. New sectors keep emerging. For example, IDTechEx notes that the potential for photovoltaics on EVs and their charging stations is very large, our recent article in our free portal Electric Vehicles Research on the Boston Logan International Airport initiatives pointing the way.
Top image source: Neytri
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