Cleantech VCs expect rise in exits and deals

U.S. cleantech investors expect to do more deals this year and see more exits of their portfolio companies, following a sluggish 2009.

Those were two of the takeaways of a recent survey of 41 cleantech investors by Reuters and Venture Capital Journal (an affiliate publication of PE Week).

More than 51% of the respondents said they expected one to two of their companies to be acquired or go public this year, which translates to anywhere from 21 to 42 companies. That would be a significant increase from last year, when only one VC-backed cleantech company, lithium-ion battery maker A123 Systems, went public on a U.S. exchange and just seven VC-backed cleantech companies were acquired, according to Thomson Reuters (publisher of PE Week).

Three VC-backed cleantech companies have already registered to go public this year:

• Codexis, which is working with Royal Dutch Shell on biofuel products, has registered for a $100 million IPO. Codexis has raised more than $125 million in VC from Bio*One Capital, Chevron Technology Ventures, CMEA Capital and the Malaysian Technology Development Corp., among others, according to Thomson Reuters.

• JinkoSolar Holding Co. Ltd., a China-based solar company, has filed for a $100 million on the New York Stock Exchange. It previously raised $35 million in venture funding from CIVC Partners, Shenzhen Capital Group Co. and Pitango Venture Capital, according to Thomson Reuters.

• And Solyndra Inc., which builds thin-film solar tubes, filed for a $300 million IPO. It has raised more than $500 million in venture capital from CMEA, Argonaut Private Equity, Redpoint Ventures, Rockport Capital Partners and U.S. Venture Partners.

More deals

Cleantech investors also expect to be more active this year. Extrapolating from the responses of the 41 VCs who took the survey, they plan to make up to 140 new investments in cleantech companies this year. That would be a significant increase from last year, when the U.S. venture industry as a whole made 117 new cleantech investments, according to Thomson Reuters.

The primary focus of cleantech investors is now conservation. Some 65% of respondents surveyed said their top cleantech bet for 2010 would be energy conservation-related companies, such as makers of LED lighting, energy-efficient building materials, software that tracks and manages energy used in homes and electric vehicles.

Less than 18% of the respondents said they would target companies focused on “clean” energy production, such as wind, solar, wave power and biofuels, to replace energy produced by coal and oil. And just 15% said they would target companies focused on energy storage, such as battery makers.

No overnight change

Most cleantech VCs surveyed don’t expect the world to make significant gains in slowing climate change by 2020, but they are optimistic that the startups they finance will lead the way in creating technologies that reduce global warming.

“It is likely that we will make significant technology, conservation and policy gains globally … but material CO2 reductions will take an additional decade to register,” Don Wood, a managing director at Draper Fisher Jurvetson, wrote in one survey response.

Robert Nelsen, co-founder and managing director of Arch Venture Partners, noted that “the world has absolutely no hope of making any substantial impact on global warming without major scientific breakthroughs, almost all which will come from United States’ innovation. China and Europe are doing well developing markets and applications, but we [the United States] still own the fundamentals.”

U.S. is best

More than three-fourths of the survey respondents said the United States would be the best market for cleantech over the next five years, and 88% said America was the best place to base a cleantech business in the next five years.

China ranked as the second best market (with 16% of the total) and the second best place to locate a cleantech business (with about 13%).

The survey respondents, most of whom are based in the United States, clearly recognize the critical role that other countries will play if widespread adoption of clean technologies is to be successful.

Countries such as China, India and Brazil “will adopt such technologies not just to combat climate change, but also because of the sheer energy demand their economies are generating,” wrote Bilal Zuberi, a principal with General Catalyst Partners. “Pressure from these countries will force the developed world to also adopt renewables and energy efficient technologies at a faster pace.”

One caveat—over the next decade, the progress will come from companies that have already moved beyond venture capital, with public share sales or by being bought out.

“VC-backed companies will definitely play a part, but considering it takes five years for one to mature, it is the companies that exist today that will have the biggest impact by 2020,” wrote Todd Jaquez-Fissori, a managing director at Hercules Growth Capital.

Additional reporting by Clare Baldwin, Reuters