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By CLAIRE CAIN MILLER, New York Times

OVER the past few years, as venture capitalists poured money into solar companies and green technology start-ups, the mood in Silicon Valley resembled the sunny days of the dot-com boom in the late 1990s. 

All that changed this winter. Now, venture capitalists are backing off, leaving some clean-tech entrepreneurs wondering whether the next few years will feel more like the dreary days following the dot-com bust.

During the first quarter of 2009, investment in green technologies by venture capitalists, who drive a disproportionate amount of financing in new technologies, shriveled.

In the first quarter of this year, they invested only $154 million in 33 young companies, a drop of 84 percent from the last quarter of 2008 when, despite the crumbling economy, they invested $971 million in 67 start-ups, according to PricewaterhouseCoopers and the National Venture Capital Association. Investment in the first quarter of 2009 reached the lowest level since 2005, before clean technology became Silicon Valley’s newest new trend.

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Venture capital investment in green technologies totaled $836.1 million in 59 deals in the first quarter of 2009, numbers that are roughly back to 2007 levels, Greentech Media Inc. said.Based in Cambridge, Greentech describes itself as an online media company covering green technology news.

The solar energy sector drew $356.6 million in VC money during the time period, followed by energy storage with $121.5 million, and biofuels with $94.15 million, the firm said.

The firm’s press release included a statement from GTM research analyst Eric Wesoff, the author of the Greentech Innovations Report, a monthly guide to investments and technology trends in greentech.

“Despite the slump, VC investors remain optimistic about the greentech sector and eventual exits in this space,” Wesoff said.

From Greentech Media blog 

The cleantech venture capital model isn’t broken, but some investors sure are stretching it as hard as they can…

http://www.slideshare.net/CleantechVC/whats-wrong-with-cleantech-vc-presentation?type=powerpoint

 From Lifespeed Venture Partners

Lightspeed has invested across several cleantech areas, including solar (Stion), biofuels (LS9, Solazyme), clean coal (Coaltek), LED lighting (Exclara), and energy storage (Mobius Power). Here are some of our cleantech predictions for 2009 (see our prior year predictions here):

1. Cleantech funding will slow significantly, forcing startups to seek alternative growth strategies

The level of cleantech VC investment reached its highest levels ever in recent years. With the market downturn, however, many of the key players in the recent wave – private equity funds, hedge funds, project financiers, and debt providers – have slowed or halted their funding pace, and the IPO window is effectively closed. VC firms will continue to invest, but at a more modest pace.

As a result, we expect many startups to delay their timing for achieving commercial production. Startups will need to rethink their scale-up strategies and sacrifice growth in favor of reaching breakeven earlier. Hardest hit will be the companies that need to make significant capital expenditures to prepare for commercialization, but still have substantial technology and scale-up risk.

As companies find it more difficult to attract funding and drive down costs, expect some to seek more creative solutions. For example, biofuel startups will increasingly leverage underutilized production assets owned by distressed corn ethanol companies for commercial production capability. Meanwhile, expect large, established energy enterprises to play an increasingly vital role in helping to support startups as a development partner, funding source, customer, distribution partner or acquirer.

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By Alain Sherter, The Latest from VC Ratings

Although clean technology has been one of the few bright spots in terms of venture capital investment recently, companies in the sector aren’t immune to the economic downturn afflicting other kinds of startups.  

Venture capitalists who invest in cleantech will veer away from more capital-intensive technologies in 2009 toward less costly applications, according to a new survey. That means relatively less investment in, for example, biofuel and solar equipment startups and more money for companies focusing on energy efficiency, monitoring, and IT and software, says Cooley Godward Kronish LLP.

The report, released this week at the Silicon Valley law firm’s energy efficiency conference in Redwood City, Calif., polled VCs, cleantech entrepreneurs and related industry professionals about investment priorities next year. Of the VCs, 70% said they will target more capital-efficient businesses. Respondents also believe that cleantech companies seeking outside funding will have to lean on venture investment, with a large majority predicting that the debt and private equity markets will pull back from investing in startups in the sector trying to commercialize their products. Meanwhile, more than 60% of those surveyed expect a rise in exit activity next year, as consolidation and economic woes cause the sector to contract.

“Notwitstanding these unprecedented economic times, investors and entrepreneurs continue to be bullish about cleantech innovation as a fundamental driver of the economy over the long term, but in the near term investors will be increasingly selective, many favoring less capital-intensive investments opportunities, including in the area of energy efficiency,” says Gordon Ho, head of Cooley’s cleantech practice, in a statement.

A record level of venture capital is pouring into cleantech despite a global economic downtown and credit crunch that’s hitting more established players in the industry.

U.S. venture capital investment in cleantech climbed to a record $1.6 billion in the third quarter of 2008, a 55-percent jump from the $979.3 million spent during the third quarter of 2007, according to an Ernst & Young report released Thursday.

The firm’s research, based on data from Dow Jones VentureSource, shows seven of the top 10 venture capital deals in the solar industry, which recently hit the governmental jackpot when President Bush approved an eight-year extension of investment tax credits.

Investors pumped $990 million into solar during the quarter, bringing the year’s running total to $1.7 billion with three months of data left to include.

John de Yonge, Ernst & Young’s Americas research director of cleantech and venture capital, said the cleantech industry is seeing a cohort of companies funded a few years ago that are now reaching the capital-intensive commercialization stage.

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From TheDeal.com

VentureDeal issued its second-quarter VC funding reports, and the sector drawing the biggest increase in private financing is, not surprisingly, energy.

During the period, 60 companies got $1.3 billion in backing. That represents a nearly 300% jump from the first quarter of 2008, and a 67% increase in the number of companies funded, the report said. Naturally, the numbers were skewed a bit by a few large deals in the alternative energy sector including solar service provider SunEdison’s $131 million fundraising and BrightSource Energy Inc.’s $115 million Series C round.

The sector was also boosted by fundings for cutting-edge energy technologies, such as advanced batteries and wireless power transmission.

VentureDeal, a Menlo Park, Calif.-based VC data provider, said the life sciences sector experienced a 3% drop, to $2.27 billion, compared to the first quarter. Despite several fat Series A biotech fundings in the quarter, including $25 million for IRX Therapeutics, $35 million for SomaLogic and $21 million for Itero Biopharma, that subsector remained flat. Pharma fundings dropped 14%, to $696 million, quarter to quarter.

Other notable developments in the quarter:

• Ecommerce fundings quintupled to $93 million among 14 companies.
• Internet companies saw an aggregate decline of 16% in the amount invested during the second quarter.
• Funding for digital media companies, which includes video game producers and ad networks, continued to slide. These companies got 10% less ($297 million in aggregate) than the first quarter.
• Software fundings climbed 3%, to $1.3 billion, allocated among 201 companies.

Two partners at the venture capital firm Flagship Ventures offer their advice about making a career switch into the cleantech industry.

From VentureBeat by Chris Morrison

Tesla Motors may have significant competition in the high-end electric vehicle space soon, if Fisker Automotive continues on its current path. The Irvine, Calif. sports car company just announced another $65 million in funding, led by a Middle Eastern firm, the Qatar Investment Authority.

Design work is well underway on Fisker’s first car, the Karma. Unlike Tesla’s model, the Roadster, Fisker is planning on making the Karma a plug-in hybrid electric vehicle (PHEV), which should make it more practical for regular or long-distance driving — assuming anyone is looking for practicality in luxury sports cars that cost double the average person’s yearly income.

However, Fisker is following Tesla’s lead in outsourcing its manufacturing. The company announced a couple months back that Valmet, a Norwegian contractor, would build the Karma starting late next year. Once fully scaled up, Fisker expects to make, and hopefully sell, around 15,000 vehicles per year.

Building a car is notoriously difficult, so it should be interesting to see whether Fisker can stick to its deadlines. Its fundings so far suggest that it’s making good progress. Along with its rounds from previous backers Palo Alto Investors and Kleiner Perkins (who also joined this investment), Fisker has taken over $75 million. But ultimately, the company will need double that amount or more to bring its plans to fruition.

As investors pour more greenbacks into green technology, recent venture capital investments suggest that the market may be maturing.

Venture capital investments in U.S. cleantech companies grew by 41 percent to $961.7 million during the second quarter of 2008, according to a recent Ernst & Young report.

While the majority of the $2.5 billion in 2007 deals were seed and first-round transactions, investments so far in 2008 have been distributed more evenly across the board with later-stage deals during the quarter accounting for more than 38 percent compared to nearly 34 percent in 2007.

“What we’re seeing is a little bit of the maturation of the companies, and in that process the type of capital that they’re requiring is more in general,” said Joseph Muscat, Ernst & Young’s Americas director of cleantech and venture capital.

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