Venture follows money on cleantech

The number of venture investments into the sector has grown by a factor of six since 2000, but venture's market share by value was only around 1% last year, according to research from Sustainable Asset Management (SAM), an investment boutique owned by Robeco.

Venture backers are hesitant, the report suggests, to invest in early-stage funding rounds to target companies, preferring instead to focus on lower-risk sectors with smaller capital requirements, and/or focus on follow-on rounds for existing companies.

This second factor is reflected in the growth of later-stage expansion investment into cleantech, which was nearly $11bn last year.

Says Andrew Musters of SAM: "European VCs are focusing more on later stage because it takes a relatively long time for early stage clean tech companies to mature. It typically takes at least three to five years before for example a great invention of a university professor is mature enough to be developed up to a point that it becomes attractive for a utility company to be adopted. I expect this trend to continue although the strong drivers behind clean tech such as resource scarcity will shorten the adoption rate somewhat in the future."

It is also likely a result of the maturation of dedicated funds: the first dedicated cleantech private equity funds were launched in the 1990s and may now be on third- or fourth-generation vehicles, meaning their focus will be on growth-, rather than venture-, stage companies. More than $44bn has been raised by nearly 300 funds globally for the asset. In Europe, Unigestion Ethos Sustainability LLP is raising €100-150m, with nearly €70m currently accounted for.

Unsurprisingly, the US attracted the lion's share of cleantech funding, with two thirds of the investment since 2000 pumped into North American targets.

Venture and expansion funding remain a very small portion of the overall investment into cleantech, with asset finance accounting for the majority of investment dollars most years, accounting for $568bn of the $1,034bn funded between 2001 and 2010 (see graph). Small scale projects accounted for nearly 15% of the total, with corporate R&D a distant third at 10%.

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