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Renewable energy basks in VC funding

Posted: 16 May 2008 ?? ?Print Version ?Bookmark and Share

Keywords:renewable energy? venture capital? VC fund? solar power?

Venture capital is flowing to firms whose technologies target renewable energy, power generation, storage and distribution markets. The trend will continue as several corporate venture funds and specialized funds are raised to address so-called energy technology.

A number of technology, business and legislative factors are coming together to drive changes in the VC arena. These include high oil prices; consumer awareness of the need to reduce CO2 emissions and adopt renewable energy sources; and legislation on energy efficiency, automotive emissions and the use of chemicals in manufacturing.

These factors, in addition to lackluster returns on investment in semiconductors and software for information and communications technology (ICT), have spurred interest in emerging technology areaseven though venture capitalists still prefer companies with strong intellectual property and large, addressable markets.

The money movement is heightened by brisk initial public offerings and merger and acquisition activity. Seeing other investors make money boosts investors' confidence. Before they get in, they want to make sure that they can get out before it's time to raise the next fund.

Some segments in renewable energy are heating up. "The recent entry of some very large Silicon Valley venture firms has served to increase valuations and expectations, particularly in solar," said Evan Bakke, a partner with Bankinvest's New Energy Solutions VC fund.

Indeed, the solar sector in 2007 attracted $3 billion in private equity and VC financing, much of it flowing to fledgling U.S. solar companies, according to researcher New Energy Finance.

The solar sector in 2007 attracted $3 billion in private equity and VC financing.

Startups heat up
In 2007, U.S. solar power startups raised $702 million, up from $181 million in 2006. The figure is also much higher than the $59 million raised in 2007 by early-stage solar companies in Europe.

Early-stage investors report that valuations for energy technology companies are still not that high. "The valuations are reasonable, and certainly not as high as Web 2.0 ventures," said Alessio Beverina, a principal at Sofinnova Partners.

"One major variance between ICT and clean tech investing is that with ICT you can always relate to Moore's Law," said Gregers Kronborg of Northzone Ventures. In semiconductors, speed, density and price are often the enablers of new technologies, so Moore's Law can provide useful information about future trends, he said. However, there are no road maps yet for solar technologies, and the distance from lab to fab can be underestimated.

'Invest opportunistically'
"Some of these solar cell startups may have to spend as much as 100 million euros [about $150 million] before they know it will work in volume. Not all will be successful; not all will be able to scale," said George Powlick of Doughty Hanson Technology Ventures (DHTV), which has backed thin-film solar cell maker Odersun since 2004. DHTV sees value in power generation, energy efficiency, and transmission or energy distribution, particularly batteries and storage technologies.

Sofinnova is looking to invest "opportunistically," especially where there are pain points that technology can alleviate. Scottish Equity Partners is also eyeing energy ventures in renewable energy, particularly solar and wind, and in startups with environmentally friendlier solutions. Henrik Olsen, a partner at Environmental Technology Fund, said his firm looks for technology-based businesses with industrial applicationseven if that means winning over larger OEMs or strategic partners.

- Valerie Thompson
EE Times

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