Clean Tech Still Sizzles as Venture Investments Cool

By Claire Cain Miller
New Time Times
February 16, 2009

Even though venture capitalists raised $28 billion in 2008 to invest in new
start-ups, they are holding that money tight. Venture investing slowed to a
crawl in 2008, the first year since 2003 that total investments declined. When
investors did decide to dole out dollars, they were more likely than not to
invest in green technology start-ups.

Venture capitalists invested $28.3 billion in 3,808 companies in 2008, an 8
percent decrease in dollars and a 4 percent decrease in deal volume from 2007,
according to data from the National Venture Capital Association,
PricewaterhouseCoopers and Thomson Reuters. The fourth quarter, unsurprisingly,
was the worst, with $5.4 billion invested, a decrease of 26 percent from the third quarter.

The investment data finishes off the dreary venture capital picture painted
earlier in January by exit data that was the worst in three decades.

The single bright spot was investment in clean-energy technologies. Investors
put $4.1 billion into 277 clean-tech start-ups in 2008, 52 percent more than
they invested the year before. Seven of the top 10 biggest deals of the year
were in this sector. Still, by the end of the year, venture capitalists’
newfound caution affected clean-tech companies, too. In the fourth quarter,
investment fell 14 percent from the third quarter to $909 million.

Venture investors continue to favor solar energy and photovoltaic companies,
which received $1.8 billion in 2008 — nearly half of the money that went to
clean energy companies. The top three deals were Nanosolar, a solar-cell maker
that raised $300 million; Solyndra, a photovoltaic solar company that raised
$219 million; and SolarReserve, which builds utility-scale solar power plants
and raised $140 million.

Start-ups that make energy from other sources, including ethanol and nuclear
energy, were next, getting $561 million, or 14 percent of the total. Companies
that recycle chemicals and solid materials brought in $304 million, or 7
percent. Battery start-ups received $224 million, or 5 percent. That will likely
rise this year, as lithium-ion battery makers are receiving increased attention
from investors and car companies.

Despite the good news for clean-tech, the trouble in 2008 hit almost every other
technology sector. Investment in life sciences start-ups fell 15 percent to $8
billion, even though biotech and medical device start-ups were the top
investment sector for 2008, accounting for 28 percent of all venture dollars invested.

Investment in software companies fell 10 percent to $4.9 billion in 2008, and
the fourth quarter was particularly brutal. The $1 billion invested in software
start-ups in the quarter marked the lowest quarterly investment in a decade.

Investment in Web start-ups was relatively flat at $4.9 billion for the year,
but fell 26 percent to $787 million in the fourth quarter. That reflects venture
capitalists’ growing wariness of Web companies that depend solely on advertising
for revenue, as digital ad budgets are being slashed, particularly for
experimental new sites.

Still, one of the biggest deals of the year was HomeAway, an online marketplace
for vacation rentals that raised $250 million in October.


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