Zeal for cleantech still going strong

VCs are on pace to set a record for cleantech investments this year, and next year will likely hit another new high if Draper Fisher Jurvetson has anything to do with it.

The early stage investor led all U.S.-based VCs with investments in 11 cleantech companies as of Nov. 27, according to data prepared for the National Venture Capital Association by Thomson Financial (publisher of PE Week).

“I think the pace will continue and may increase,” says Jennifer Fonstad, a DFJ managing director and the lead investor in two of the cleantech deals the firm has done this year. “With our broad network of partners around the globe, we’re seeing lots of opportunities in China, India and Israel, as well as the U.S.”

It wasn’t that long ago that alternative energy deals were the province of a handful of firms, such as Nth Power. Now those specialty funds have been eclipsed by much larger tech generalists, such as DFJ, Kleiner Perkins Caufield & Byers and New Enterprise Associates. In a testament to how mainstream cleantech has become, five of the 10 most active investors in the space aren’t cleantech specialists (see table).

Overall, U.S. venture firms plowed $2.6 billion into 168 cleantech deals in the first nine months of this year, according to Thomson and the NVCA. That compares to $1.77 billion invested in 180 deals for all of 2006 and is nearly five times as much as VCs invested in cleantech in 2005.

The vast majority of investment went into solar-related deals, where VCs did 35 deals totaling $665 million. The other key segments were: alternative energy including nuclear power (and excluding wind, solar, geothermal and co-generation), which pulled in $317 million for 33 deals, power supplies, which attracted $184 million for 25 deals, pollution/ recycling technologies, which landed $147 million for 19 deals, and wind energy, which saw a gust of $63 million for four deals.

Top 10 investors

I think the pace will continue and may increase. With our broad network of partners around the globe, we’re seeing lots of opportunities in China, India and Israel, as well as the U.S.

Jennifer Fonstad, Managing Director, Draper Fisher Jurvetson

With DFJ leading the pack, the top 10 cleantech venture investors as of Nov. 27 included Khosla Ventures (which invested in 10 companies), DFJ Element (nine), Kleiner Perkins (eight), Goldman Sachs & Co. (seven), @Ventures (six), NEA (six), NGEN Partners (six), Nth Power (six) and VantagePoint Venture Partners (six).

Ranked by dollars invested, Kleiner Perkins comes out on top with $76.8 million, followed by Khosla and VantagePoint.

Of DFJ’s dozen investments, five were in solar-related companies, two in companies that have found ways to cleanly draw energy out of coal and other sources, two in startups developing biofuel, one in an energy storage company and one in an electric car maker.

The high volume of deals is both a product of DFJ’s belief in the space as well as a growing number of ideas being pitched by entrepreneurs. “We have a core belief that the energy economy is splintering away from being oil-based to a host of other energy-based inputs,” Fonstad says. “And that fundamental shift is driving entrepreneurs to explore new opportunities.”

This year alone, the firm has looked over about “a couple thousand” business plans, she notes.

Segments that continue to be of interest to DFJ include clean water solutions, wind, geo-thermal and biofuels. For example, it might make sense to use small-scale windmill farms to power certain parts of a home, such as a hot water heater, in areas such as China and India, Fonstad says.

Even in areas where there has been significant investment, such as solar, Fonstad says she’d be reluctant to pass on any new deal without at least giving it a look. “It’s too early to rule anything out at this stage.”