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Solar Energy Venture Capital

Written By Nick Hodge

Posted January 23, 2008

Well, the totals for venture capital (VC) spending in 2007 are in. And, as was expected, the cleantech sector came out a big winner.

At just about $3 billion, VC funding for cleantech jumped 70% over 2006 levels, even though total VC spending only rose 9.4%–a clear sign of the bright future venture capitalists see for the cleantech industry.

According to Mark Heesen, president of the National Venture Capital Association, cleantech made up about 10% of overall VC investment in 2007.

And nearly all of those dollars went to solar companies, whose publicly-traded counterparts saw a corresponding rise in their stock prices for the year.

In contrast, wind energy companies got less than 10% of the funding solar did in the same time period.

But that’s about to change.

"As venture capitalists become more sophisticated and learn more about this area, you will see a much more diffuse area of investment within the cleantech sector," Heesen said.

That, of course, raises the question: What the hell is taking them so long?

While that may be a valid question to ask, the answer really doesn’t help us in our quest for profits. So we have to go with what we have.

And what we have are venture capitalists looking for new (to them) areas to fund.

Venture Capital for Wind, Demand Management and More

That means we could see new opportunities in already proven areas like wind, demand-side management and geothermal.

Paul Holland, General Partner at Foundation Capital, believes the low-hanging fruit is on the demand side, i.e., companies that either reduce the need for energy or manage the load put on the grid at any given time.

We’ve already seen opportunities in this sector from companies like Comverge, Inc. (NASDAQ: COMV ) and EnerNOC, Inc. (NASDAQ: ENOC ). But with more VC dollars pouring in, we could see an abundance of new plays.

And those plays could prove to be increasingly valuable if the companies harvest and sell the carbon credits associated with their business. I’d also look out for Echelon Corporation (NASDAQ: ELON ).

Beyond demand management, VC funding will help spur new developments in energy storage devices, like batteries and fuel cells, as well as in technologies that help buildings use less energy.

The latter will fall under the realm of green building stocks, which have been discussed previously in these pages. And again, these types of companies will also see twofold revenue streams from an ever-increasing carbon market.

In fact, the global carbon market grew 80% last year to $60 billion, according to Point Carbon, an Oslo-based group of analysts and consultants.

Bottom line: As venture capitalists become more comfortable with new green technologies, a bevy of start-ups could make their way to the trading floor with promising new solutions.

Of course, Green Chip will be waiting in the wings to pounce on the green IPOs that show the most promise.

Until next time,