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Record Capital Again Flows to Clean Tech


Deborah Gage
San Francisco Chronicle
October 1, 2008


Clean technology startups once again raised a record
amount of venture capital in the third quarter, $2.6 billion, with 42
percent of it going to companies in California, according to a new report.

More than two-thirds of the funding went to firms in the United States.
But problems with the U.S. financial system means the torrid pace can't
continue, the report warned, potentially threatening one of the bright
spots in Silicon Valley's economy.

"The investors we've talked to are all very worried about credit and the
availability of capital," said Brian Fan, senior director of research at
the Cleantech Group in San Francisco, which issued the report.

But, he said, if Congress doesn't agree on a bailout plan, "All bets are off."

One sector that would suffer, he said, is biofuels. "From a technology
standpoint, the cellulosic guys are years away from production, and we
know that this business is very capital-intensive. Big investors in
first-generation ethanols (made from sugar, starch, vegetable oil or
animal fat) have been burned by these investments. With the exception of
algae, cellulosic ethanol will be affected."

One of the quarter's top investors - Wilber James of Rockport Capital
Partners - said that although investments in clean technology will
continue, venture capitalists will be more cautious about their investment
partners and about how much money startups need to break even. "Nobody can
just assume the public markets will be available in two or three years," he said.

All five of this quarter's top investors - four venture capital firms plus
Google - are in the Bay Area, as are several of the companies that
received investments, including Altarock Energy in Sausalito, which
generates electricity from geothermal energy; Solazyme in South San
Francisco, which generates fuels and chemicals from marine microbes; and
OptiSolar in Hayward, which manufactures photovoltaic modules to capture
energy from the sun to produce power.

Even with a possible downturn, the amount of money invested in clean
technology - $6.6 billion so far this year - is already larger than all of
the money invested in 2007. Investments were up 17 percent over the second
quarter and 37 percent over the third quarter from a year ago.

The three sectors that raised the most money - thin films for capturing
solar energy, smart power grids and algae for producing fuel - all did so
because in each, the technology is far enough along that investors are
willing to make bets on which companies will win.

Gridpoint, which lets the electric power grid recognize when it's loaded
and sends commands to sensors and smart thermostats to conserve power,
raised $120 million from existing investors.

One reason is that major auto manufacturers have announced dates for
producing electric cars, Fan said, which means the grid has to be upgraded
so the cars can plug in.

Another catalyst is Gridpoint itself, which is trying to get a jump on
competitors by acquiring other companies.

Thin film solar companies raised $620 million, in part because a
manufacturing process developed by First Solar and kept secret may have
been cracked, Fan said.

Meanwhile, investors in algae companies are betting whether the plants
will be better at producing energy from sunlight or sugar, he said.

 

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