Cleantech investing was on fire in the third quarter of 2009, continuing to rebound as other sectors stayed cool, according to preliminary figures released this week by the Cleantech Group and Deloitte and Touche.
The upshot: Cleantech is now the largest category for U.S. venture capital investment.
That's "a long way for the category to have come from niche status only eight years ago," said Dallas Kachan, managing director of the Cleantech Group.
The key to the jump was Washington, specifically the billions it poured into the slouching sector.
The two largest VC deals of the quarter — solar firm Solyndra and electric car maker Tesla Motors — received hundreds of millions of government dollars. In fact, government-backed companies worldwide took in one-third of all the capital raised.
These taxpayer sums are "helping to loosen the flood gates," Kachan told reporters in a teleconference unveiling the data.
Overall, venture investments in North America, Europe, Israel, China and India totaled $1.59 billion across 134 companies, up 10 percent compared to the previous quarter's $1.2 billion.
The recovery comes after cleantech got creamed in the fourth quarter of 2008 and first quarter of 2009, just like the rest of the economy. Now it's "dramatically outperforming" VC overall, Kachan said.
Most of the third-quarter deals — 67 percent — were in North America. The extension of tax credits and other provisions packed into the U.S. stimulus package were drivers of growth, along with requirements to meet state Renewable Portfolio Standards.
Solar was the big winner, rising after a three-year low to snag the No. 1 spot. The sector leaped from the previous quarter's 13 percent to 28 percent of venture investment.
Most of that was due to a single deal: Solyndra, which raised $198 million after the Energy Department granted it a $535 million loan guarantee to help build a factory for its solar cells. The other major solar deal was a $77.6 million round for California-based SolFocus.
The second highest area of investment was transportation, taking in $383 million. The Tesla Motors deal accounted for $82.5 million of that. Green buildings had a record quarter with $110 million. Some $60 million of that was concentrated in green building materials company Serious Materials.
It wasn't all good news. Cleantech investing is still down 42 percent from last year. Round size has officially stabilized at a new, lower level of $12 million. And on the policy front, Washington's choice to prime the cleantech pump has some experts voicing caution.
One problem they see is that companies not getting government dollars are now having a harder time raising private capital.
"The net [investor] reaction is to follow the DOE where it acts and otherwise play a cautious hold game — not ideal at all for the cleantech industry," Stephan Dolezalek, managing director and cleantech group leader at VantagePoint Venture Partners, told the Cleantech Group.
Still, plentiful government funding has been vital in getting venture firms to return to investing, at least for now. The stimulus package has about 18 months left. Some are warning the federal financing spigot will be closing even sooner than that. Globally, though, more is on the way.
"Of all the billions available in government stimulus around the world, only a very small amount has been allocated to date, let alone actually put in companies' hands. For instance, South Korea has only allocated 20 percent of its cleantech stimulus capital — and they're the ones that have given the most away," Kachan said.
There are other reasons to be optimistic. Carbon regulation is coming to America, so are expected boosts in state-level energy efficiency and renewable energy requirements. The IPO pipeline will be disproportionately cleantech. And if the UN climate conference in Copenhagen in December ends in a replacement deal for the expiring Kyoto Protocol, the flow of capital could explode.
"The starter coals have been lit, and now they're starting to catch fire," Kachan said.