Number of Cleantech Investors Decreasing

A declining number of investors in the cleantech sector represents a worrying trend, according to analyst firm Kachan & Co.

In analyzing recent data from the Cleantech Group, NVCA, Thomson Reuters and others, the firm found a gradual downward trend every quarter since early 2009 in the number of venture investors in cleantech.

While the amount invested had been growing quarter-on–quarter the last year (until this third quarter), the same period has shown a decline every quarter in the number of actual investors participating.

"Surveys by NVCA and AltAssets this summer suggested venture investors and limited partners want exposure to cleantech. But investments of the last year have been made mostly by a shrinking pool of entrenched investors," noted Dallas Kachan, Managing Partner of Kachan & Co. "Is there a lot of capital on the slidelines, watching and waiting? Are new investors expressing interest in cleantech because it’s fashionable, but not voting with their checkbooks? Either way, the herd actually investing has thinned."

Kachan also notes fewer early stage investments. Most cleantech investments in recent quarters have been later stage fundings of existing, established cleantech companies. Since late 2008, data shows that early stage investments have been giving way to follow-on rounds, which could be impeding the development of new clean technology.

"Yes, cleantech is getting the largest share of venture capital of any sector, but that’s by itself not necessarily an indicator of sector frothiness. More of those funds than ever before are going to shoring up mature companies," said Kachan. "Less than 10% of global cleantech venture investment dollars today are going into early stage deals. Investors are creating a disproportionate amount of ‘walking dead’–companies kept alive, sometimes bolstered by government funding, hoping for an exit–and that’s capital that new cleantech innovation isn’t getting."

And when it comes to cleantech exits, China dominates. For more than two years, the cleantech IPO environment in North America and Europe has been a shadow of what it was in 2007. Yet, IPOs and M&As are alive and well in China. For the last five quarters, China has led the world in the number of cleantech IPOs, and often in the proceeds of those IPOs each quarter.

"For several quarters now, there have been two to three times as many cleantech IPOs each quarter in China than either North America or Europe. And higher returns are generally being made. The huge cleantech returns in China are getting too little attention by investors focused predominantly on Western cleantech companies," Kachan said.