Silicon Valley, California: Cleantech Hubs

Silicon Valley, a region that has a knack for turning budding innovation into booming industries, is emerging as a significant cleantech hub in North America. Its home state of California also is gaining strength as a magnet for cleantech startups and a model for environmental and energy conscious policy makers, putting the state on target to be among the economic winners as markets grow.

California pulled in $2.1 billion, or 26 percent of the total cleantech funding for North America between 2002 and 2006, according to an analysis by the Cleantech Venture Network. The state had a banner year in 2006, attracting more than $1 billion in cleantech investment, or 37 percent of the North American total for the year.

The investment is likely to spur economic growth in cleantech-related industries. In the white paper “Creating Cleantech Clusters: 2006 Update,” analysts from the Cleantech Venture Network and E2 (Environmental Entrepreneurs) calculated that $4.8 billion in venture capital invested in California cleantech companies between 2005 and 2010 would produce 75,000 jobs over the next two decades and create $17.2 billion in incremental annual revenue.

Silicon Valley attracted almost half the total amount of venture capital invested in cleantech companies in California between 2002 and 2006. Investors channeled $989.6 million into Silicon Valley companies in the four-year period, or about 46 percent of California’s $2.1 billion total funding. In 2006, Silicon Valley accounted for 60 percent of all Californian cleantech investment. Deal size in both California and Silicon Valley tended to be higher than average. Silicon Valley’s $15.5 million average cleantech deal size for the four-year period was more than double the North American norm of $7.2 million. California averaged $11 million.

Silicon Valley ranks especially strong in the materials and energy-related segments. More than 70 percent of VC invested in materials deals in California went to Silicon Valley, with nanomaterials companies being the clear favorite. In the energy categories, Silicon Valley received 89 percent of California’s investments in energy infrastructure, 62 percent of energy generation, 59 percent of energy efficiency and 48 percent of the energy storage investments.

Silicon Valley’s cleantech hub benefits from the regionys entrepreneurship and technical expertise. For instance, the region’s well established startup networks combined with its history as a pioneer in information technology and semiconductors provide a foundation for innovation in nanomaterials and some energy-related technologies. Corporations such as Intel and Hewlett-Packard see nanoscale materials as the solution to their quest to make smaller, faster and more functional integrated circuits, which has helped build the Silicon Valley’s strength in nanotechnology. The region also abounds with knowledge about silicon, the primary ingredient in computer chips and the dominant type of solar cells.

California and Silicon Valley also benefit from favorable public policy. California’s Gov. Arnold Schwarzenegger promoted a variety of initiatives aimed at reducing greenhouse gases and improving energy efficiency in the state. For instance, a recently signed greenhouse gas standard is expected to triple the size of the renewable fuel market in California. Anticipated demand for ethanol and biodiesel has made California’s biofuels companies attractive investments. The Cleantech Venture Network analysis found that $390 million of the $850 million total venture capital invested in biofuel deals in 2005 and 2006 supported California companies.

++++

Candace Stuart is director of publications and Linda Hitchcock is a research and data management specialist for the Cleantech Group, the parent company of the Cleantech Venture Network.

www.cleantech.com