Global venture capital investments in clean technology companies surged to US$1.1 billion in the first six months of 2007 alone, according to a mid-year research by Ernst & Young and Dow Jones VentureOne. Propelled by activity in the US, 2007 venture capital investments in clean technology companies are now on track to increase by more than 35% compared to 2006.
“Clean technology has moved from vision to reality, and it’s now a priority on the CEO agenda of every company from the entrepreneurial growth companies to the multinational market leaders,” said Gil Forer, Global Director of Ernst & Young’s Venture Capital Advisory Group. “The accelerating venture capital investments reflect the growing importance of the sector. A strong innovation pipeline and confidence in the global drivers supporting growth in the clean technology market – such as government policies, consumer awareness, energy prices and concern about carbon emissions – are driving venture capital investment.”
The largest number of investments was in the US with 71 deals closed in the first six months of 2007, which raised over US$893 million. European investments are set to reach or even exceed 2006 levels, with 19 deals and US$80 million invested in the first six months of 2007. “Although venture capital investments in clean technology companies in China and Israel are still nascent, we expect that they will continue to accelerate,” said Jessica Canning, Director of Global Research with Dow Jones VentureOne.
Since 2001, clean technology’s global share of overall venture capital investments has more than doubled. For example, in the US, clean technology’s share of investment increased from 1.4% in 2001 to 5.4% in the first six months of 2007. Similarly, clean technology in Europe has enjoyed robust growth rates, and its share of investment has increased from 1.6% in 2001 to 4.4% in first half of 2007.
Globally, the valuations of clean technology companies are substantial. For example, in the US, median valuations reached US$30 million in the first half of this year – up from US$15.8 million in 2001. Nearly all clean technology segments have seen major leaps in median valuations in the last year, the research showed.
In terms of segment focus, solar is dominant in the US and alternative fuels are on the rise. According to the research, in the US, solar investments accounted for 15 of 26 deals and US$305 million of US$458 million raised in the energy generation segment. In Europe, alternative fuels are still dominating with wind power having a fair share of the total amount invested.
“When a sector sees year-over-year investment growth of 70%, and attracts more money than semiconductors in the US, you know it has truly arrived. The premium placed on clean technology companies appears to be the driving force behind the continued surge in investment. With post valuations increasing by 163% over the past three years, and liquidity events gaining traction, clean technology looks to gain momentum in the venture community,” added Jessica Canning, Director of Global Research with Dow Jones VentureOne.
While there have been relatively few venture-backed IPOs in the clean technology space in the first half of this year, there have been several significant offerings in the last two years. Europe produced the sector’s largest venture-backed IPO during this period: the solar company Q-Cells, which was capitalized with a US$428.7 million transaction on the Deutsche Borse in 2005. LDK Solar Hi-Tech, a Chinese company that raised US$361.6 million on the NYSE in 2007, saw the highest post-money valuation at IPO: US$2.8 billion. EnerNOC, a demand response and energy management solutions provider, concluded the largest US clean technology IPO in the first half of 2007 with a US$92.6 million offering on NASDAQ in May.
“Venture capital investors are likely to remain bullish about the opportunities in the sector, as regulatory compliance, increased consumer and economic demand have elevated clean technology to a strategic level. Despite the recent turmoil in the equity markets, we expect more clean technology IPOs in the years to come, as the sector matures, and the path from investment to exit becomes clear for investors,” Mr. Forer concluded.
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