Kleiner Perkins Caufield & Byers foreshadowed a return to its digital core a few weeks ago when it announced Digital Growth Fund (DGF) would invest $38 million in Facebook.
The news troubled some in the green power sector because it signaled that the firm’s interest in renewable and cleantech startups might be waning. In a relatively short amount of time Kleiner Perkins has become an important backer of fledgling green energy companies. However, with money once again chasing tech companies, there is real concern that green energy is falling out of favor with investors. Pessimists point to Goldman Sachs’s and Google’s failed $6 billion as further proof that the web is thriving while greentech sags.
A cursory look at the numbers seems to support this assertion. In 2008 venture funds pumped more than $4 billion into the green sector, but over the last two years investment has slipped and cash-flow challenges have early-stage investors rethinking their overall strategy. Green energy is certainly hampered by the fact it often requires significantly larger initial investments than IT. It also rarely fits the conventional three-to-five year and exit model favored by venture capitalists.
However despite the siren song of the IT sector, venture capitalists have not completely turned their back on green energy. Many in the venture community have changed their approach, choosing to back cleantech and energy efficiency companies that hold greater promise for short-term profitability. Others continue to quietly gather funds for further investment in a variety of green energy projects. In fact, according to data compiled by G.E.R., U.S.-based venture and private equity funds are raising $2.4 billion for new green energy and cleantech funds. Sequoia Capital has raised $1.3 billion, the Westly Group is putting together $175 million for its third cleantech-focused fund, and Global Energy Investors has nearly $200 million for a green infrastructure fund. These numbers are all the more impressive considering the tepid economy, and they indicate that the venture capital investment pipeline for green energy remains strong.
This week’s headlines support G.E.R.’s numbers. Google led a $20 million funding of energy efficiency company Transphorm and George Soros’ Soros Fund Management said it would be a cornerstone investor in Silver Lake Partners’ new green venture fund — Silver Lake Kraftwerk. Soros Fund did not say how much it would invest in the new venture but it was certainly enough to attract Cathy Zoi, an Obama administration alum who most recently worked with Energy Secretary Steven Chu overseeing energy efficiency and renewable energy initiatives. At Silver Lake Zoi will work with Adam Grosser, a West Coast venture investor who will manage the fund.
In addition to the Google and Soros action, Fisker automotive managed to raise $150 million and the Illinois State Treasurer is backing a bill that could double the amount of money it invests in venture capital funds.
Cleantech investments rose sharply in Canada in 2010, and 2011 may be another banner year. In Ontario, the country’s most populous province, the government-funded green revolution continues to gather steam. As the week closed, the Ontario Power Authority (OPA) awarded power purchase contracts that will support 872 megawatts of renewable energy projects. The projects require about C$3 billion ($3.05 billion) in private investments to fully develop. This latest deployment is a direct result of the Green Energy Act, which was signed into law two years ago. The Ontario Power Authority has approved more than 2,625 megawatts of solar power purchase contracts under the act’s investor-friendly regime.
This latest batch of green power contracts comes a few months ahead of provincial elections, which could lead to significant changes in the act. Indeed, the province’s Progressive Conservative party, led by Tim Hudak, has come out against the feed-in tariff, arguing that it is too expensive. Hudak and his government in waiting have said they would not void existing contracts, but solar and wind developers should expect renegotiations if the Progressive Conservatives beat the Liberal Party of Premier Dalton McGuinty this fall.
VC and PE Watch
Illinois Treasury Seeks To Double Venture Capital Investments
Fisker Automotive Raises $150M
George Soros Partners With Silver Lake To Launch New Cleantech Fund
Google Leads $20M Investment In Energy Efficiency Company Transphorm
Canadian VC: Cleantech Investments Rise Sharply In 201
Ramblings and Musings
On the other side of the world, Libyan dictator Muammar el-Qaddafi unleashed his mercenaries this week in a desperate attempt to hold onto power. The turmoil in Libya has oil prices in London and New York surging. On Friday Brent crude in London was trading at $111.43 and nearing $100 in New York. An economic rule of thumb posits that every $10 increase in crude prices shaves half a point from U.S. GDP. Back in 2005 economic and environmental concerns jump-started an unprecedented investment flow into the green sector. However, now the industry is more mature and investors more cautious, which might make it difficult for the green energy sector to get a similar boost from the latest spike in oil prices. However, the events in Libya and their effect on crude prices do confirm that a homegrown, sustainable, carbon-free energy infrastructure, despite its initial expense, could be a smart long-term investment for developed and developing countries alike.
Photo: Kerrismatic, Flickr