VC Investment in Cleantech Drops for First Time in 2 Years

The Cleantech Venture Network (CVN) announced last week that U.S. venture investment in clean technologies fell 34 percent in the fourth quarter of 2006. Investment in cleantech, which includes products and services that reduce or eliminate environmental impacts, declined to $613 million last quarter -- down from a record-breaking peak of $933 million in the previous quarter. The drop brought to an end nine consecutive quarters of gains for cleantech, but still capped a record-breaking year for VC investment in the sector.

 

A CVN press release suggests that the lower figures can be attributed to inflated valuations earlier in the year, or common fluctuations in the market. Several large third-quarter deals also had an affect on the figures. In Q3, the top five cleantech deals accounted for 61 percent of total investment. Though the total number of deals grew from 47 to 74 in the fourth quarter, the average size of these deals dropped from $19.9 million to $8.3 million. Even with the drop in investment, the industry managed to post a 22 percent increase over the last quarter of the previous year.

 

Cleantech was not the only industry affected by the fourth quarter decline. Venture investment for all industries experienced a 14 percent drop from $6.6 billion in the third quarter to $5.7 billion, according to PricewaterhouseCooper’s MoneyTree Report. Several industries experienced investment decreases for the entire year, including Networking and Equipment; Computers and Peripherals; and Financial Services.



Overall, however, last year was an active one for venture investment. Venture capitalists invested $25.5 billion in 3,416 deals in 2006, according to the MoneyTree data. The MoneyTree year-end summary of VC activity reports a 10 percent increase in deal volume and a 12 percent increase in total investment dollars over 2005. Venture investment reached its highest level since the industry’s peak in 2001. The National Venture Capital Association’s (NVCA) annual survey of predictions for the venture industry revealed that investors are confident about the industry’s health in the coming year as well. Sixty-nine percent of investors believe that investment levels will reach between $20 billion and $29 billion in 2007.

 

Despite the fourth quarter setback, 2006 was a good year for the cleantech venture capital industry as well. CVN estimates that VC investment reached $2.9 billion last year in North America, a 78 percent increase over 2005. The majority of VC interest in clean technologies was directed toward energy-related ventures, which accounted for 74 percent of total investment. Other technology categories also posted significant gains, including Recycling and Waste ventures, and Transportation. Energy investment is expected to continue this growth in 2007. The NVCA survey reports that 91 percent of venture capitalists expect increases in the sector next year.

 

Read the Cleantech Venture Network press release at: http://cleantech.com/index.cfm?pageSRC=PressReleases

 

Read PricewaterhouseCoopers’s analysis of the 2006 venture capital industry at: http://www.pwcmoneytree.com/exhibits/06Q4MT_Press_Release.pdf