The New Deals

Cleantech is Growing, Despite the Sluggish Economy
Doubters about the future of the fast emerging clean technology (“cleantech”) sector may be quiet after hearing that companies dedicated to such forward-thinking endeavors as energy efficiency, smart grid, energy storage, water and green transportation had their best first quarter of fundraising ever. CleanTech Group, a trade group which facilitates networking and provides market intelligence, recently reported that in the aggregate, clean tech companies took in some $2.5 billion in investments between January and March this year (up from $1.68 billion the previous quarter and $1.97 billion from the first quarter of 2010).

“In recent months, some data providers have sounded alarms about the future of cleantech investment, pointing to downslides in the number of investors investing in cleantech, difficulties by investors in raising new funds and anecdotal concerns about the number of deals being done,” reports Dallas Kachan, managing partner of cleantech research and advisory firm Kachan & Co. “But the latest investment data paints a much better picture.”

“There are a record number of deals being done globally, for near-record proceeds,” continues Kachan. He warns, however, to expect a falloff in cleantech venture investment long term as the sector matures, but adds that the gap will be filled by other sources of capital, which is the typical trajectory for any once-speculative but strongly emerging sector. Kachan can already see this transition starting to take place as large corporations begin to outpace venture capital firms in making investments in emerging clean tech companies.

“Japanese companies including Sharp, Toshiba and Panasonic have pledged to invest $4.5 billion in cleantech over the next 15 months,” reports Kachan, adding that Korean companies Samsung and LG Group have pledged billions more. “With the largest companies worldwide sitting on trillions in cash, the climate is right for increased corporate multinational M&A, investment in and purchases from cleantech companies.”

The other big “a-ha” of the CleanTech Group’s latest quarterly tally from Kachan’s perspective is the record amount of investment in deals related to “clean” agriculture. To wit, California’s WeatherBill, which offers financial protection against unexpected weather, recently raised $42 million, while biological pesticide makers AgraQuest, also from California, raised $17.7 million and China’s Shijiazhuang Xingbai Bioengineering pulled in $18.3 million.

“Water shortages and climate change are obvious drivers, but the rising price of oil is also propelling innovation in food production,” says Kachan. “Today’s agriculture yields are critically dependent on petroleum-based phosphorus fertilizer. So as the price of oil rises, there’ll be even more incentive for innovation in agriculture.”