Isra-Mart srl:US clean tech venture capital plunges 55 per cent

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Third-quarter falls paint a worrying picture of fewer deals and shrinking investment after strong start to the year, but analysts claim volatility is to be expected
BusinessGreen.com staff, BusinessGreen.

US venture capital investments in clean tech companies fell by 55 per cent in the third quarter of 2010 compared to the same time last year, although analysts were quick to play down the implications of the apparent loss of confidence.

A report released earlier this week by consultancy Ernst & Young and based on data from Dow Jones VentureSource, found the number of venture capital clean tech deals fell by almost a quarter with only $575.6m (£353.3m) invested across 53 financing rounds, less than half that invested in the third quarter of 2009.

The figures are in stark contrast to those published by Ernst & Young in May, which suggested that in the first quarter of 2010 the total value of clean tech deals soared 68 per cent year on year to $733.3m.

The company said that the most recent quarter saw a shift towards smaller, earlier-stage deals, with Solaria Corporation's $65m funding round the largest recorded over the past three months.

Regionally, California experienced a significant decline in investment, with the number of deals falling 44 per cent year on year to just 21 deals and the amount invested plunging 71 per cent to $295m. In comparison, the state recorded five deals worth more than $50m during the third quarter of 2009, including $286m of funding for solar company Solyndra.

The fall in investment will further fuel speculation that uncertainty about the future direction of US climate change policy is hampering the development of green businesses and discouraging investors from backing clean tech firms.

However, the Ernst & Young report still found some positives, noting that investment in the energy efficiency segment rose six per cent year on year to $161.7m.

Similarly, Massachusetts saw a 65 per cent jump in capital invested compared to 2009, while New Hampshire and Texas established themselves as the US's other clean tech hot spots with investment of about $50m each.

The consultancy added that sizeable corporate buyouts, such as NRG Energy's $350m purchase of Green Mountain Energy and Sharp's $305m deal for Recurrent Energy, were also helping to bolster investment in the US clean tech sector.

Jay Spencer, Ernst & Young's Americas clean tech director, said that all that was stopping the sector from reaching the numbers recorded in the first quarter of 2010 was a couple more "blockbuster deals".

"This quarter reflects the ongoing volatility in clean tech investment that we have observed over the past two years, depending on the presence of the very large transactions we see in clean tech," he said, adding that investment levels had the potential to recover rapidly. "A number of factors point to the continuing strength in the US clean tech sector, including growth in energy-efficiency investments and corporate involvement throughout multiple industries – from utilities to technology to consumer products."