VC funds still love green, remain cautious

Venture capitalists searching for the next big green idea to invest in are being more cautious in their due diligence, but are still more than willing to place risky bets in the emerging sector.

Four major venture capital firms—Kleiner Perkins Caufield & Byers, Khosla Ventures, Draper Fisher Jurvetson and VantagePoint Venture Partners—said the funding atmosphere for cleantech startups is improving and the valuations for many of these companies have come down from previous years.

Venture capitalists have been slow to put money into new companies during the recession because they have had trouble cashing out their previous investments.

Investment in green companies—everything from renewable energy, electric vehicles and energy storage to effective transmission of power—slipped in the last nine months following the economic recession and plunge in oil prices.

Venture capitalists said the tough financing atmosphere and economic downturn has made everyone cautious, but not enough to rethink their strategy in the sector.

“Our strategy maybe is slightly more cautious,” Vinod Khosla, managing general partner of Khosla Ventures, told Reuters on the sideline of the GoingGreen West conference at Cavallo Point in San Francisco last week.

“In general I don’t think there’s a change in what we are investing in,” he said. “We are still being pretty aggressive about technology risks and taking lots of technology risks.”

The green technology investments of Khosla Ventures, which recently closed two funds that raised more than $1 billion to invest in renewable energy and cleantech, include solar thermal company Ausra, geothermal company AltaRock and biofuels makers Mascoma, Coskata, Range Fuels and Verenium.

Ray Lane, managing partner at Kleiner Perkins, said that while his firm’s strategy has not changed, the bar is much higher for investment in cleantech.

“For us to make an investment in a company, whether it’s the first investment or it’s an investment we are doing in one of our own companies, the bar is a lot higher and the whole industry is that way,” Lane told Reuters.

Kleiner Perkins has invested in such companies as Ausra, plug-in hybrid carmaker Fisker Automotive and smart grid company Silver Spring Networks. Other funds, such as Draper Fisher Jurvetson, are reacting to the downturn in the economy by focusing on less capital intensive businesses, according to Raj Atluru, managing director of DFJ, which has about one-third of its investment in cleantech.

On the bright side for venture funds, valuations of companies in cleantech, including once-hot solar firms, have come down.

“Valuations in general are healthier for us as investors,” said Marc van den Berg, managing director of VantagePoint, which has invested in such companies as electric carmaker Tesla Motors and solar thermal firm BrightSource Energies.

“Valuations in every sector have come down,” he added. —Poornima Gupta, Reuters