Venture capital isn't flowing into U.S. clean-technology companies like it once was, new investment figures show. The sector is suffering from overall uncertainty in the venture market, coupled with fears about investing in businesses that require a lot of capital, insiders say.
"The general trend has been down, but there are a few notable exceptions," says Paul Holland, a general partner with Foundation Capital, which has backed several companies in the energy-efficiency and smart-grid sectors.
Clean-tech companies, which include everything from wind and solar to biofuel and clean-coal ventures, raised $575.6 million in 53 deals in the third quarter, less than half of the amount they raised in the year-earlier quarter, according to Ernst & Young LLP, based on data from Dow Jones VentureSource, which is owned by News Corp., publisher of The Wall Street Journal. Still, because of a fairly robust first half, the sector may close the year little changed from 2009 in terms of money raised.
Start-ups offering products or services designed to increase energy efficiency attracted the most activity in the third quarter, raising $161.6 million in 17 deals. These companies typically have relatively modest capital needs.
More capital-intensive solar-power businesses, meanwhile, have become less popular with the venture-capital crowd. They have accounted for about a quarter of the total amount invested in clean-tech ventures so far this year, down from about half during 2008.
All Aboard For Energy
A new energy company may have found its niche in an unlikely spot—the edge of train stations.
Kinetic Traction Systems Inc. is a provider of so-called flywheel power for rail systems. When a train pulls into a station, Kinetic's flywheel system absorbs all of the power generated by braking—as much as three megawatts. It then releases the power 20 or 30 seconds later to help the train accelerate.
The company, which was spun off from flywheel energy-storage company Pentadyne Power Corp., already has a $4 million contract to install flywheels on the Long Island Rail Road, which is likely to bring the company to break-even, says John Babcock, partner with Rustic Canyon Partners, one of the company's backers. He says Kinetic Traction is talking to engineers at the LIRR about how many more systems they would need, and it may be 100. "A hundred of those at $4 million apiece is a pretty big piece of [capital expenditure]," he says.
Boosting the Sun's Power
SolarEdge Technologies Inc., which makes converters and inverters designed to boost the output of solar-power systems, says it decided to raise an additional $25 million from venture investors to help accelerate its growth.
With the Series C investment from Lightspeed Venture Partners, General Electric Co., Genesis Partners, JP Asia Capital Partners, Opus Capital, ORR Partners, Vertex Venture Capital and Walden International, the Hod Hasharon, Israel-based firm plans to boost production and sales in 2011 and open new sales offices in France, Italy, the U.S. and Asia.
A few years ago, solar systems were all connected to large central inverters that converted alternating current from the panels into direct current consumed on the grid. But several companies started offering "microinverters," or products that attach to individual panels in a solar-power system in order to boost output of the entire system. That market, of which SolarEdge is a part, is now growing rapidly.
The overall solar inverter market last year was about $3 billion, according to Ash Sharma, research director with IMS Research. Of that total, microinverters represented just $20 million. This year, he expects the total inverter market to nearly double, with microinverters and converters generating about $80 million to $90 million in sales.
Inverters for solar-power systems convert direct current from solar panels into alternating current consumed on the grid. An item about SolarEdge Technologies in this article incorrectly said the inverters convert alternating current into direct current.
$161.6
Amount, in millions, raised by start-ups focused on energy efficiency during the third quarter.
What Else Is New?
Here's a look at other recent deals reported by VentureWire:
Solar-panel maker Solaria Corp. added $20 million from Adams Street Partners LLC, Cycad Group LLC and Western Technology Investment to close a Series D funding round at $65 million.
Fundant (Changzhou) New Metal Materials Co., which makes sawing wire that can be used to cut silicon ingots into wafers that are eventually made into solar cells, has received an almost $15 million investment from Sequoia Capital China.
GlassPoint Solar Inc., which has developed concentratedsolar-based systems that help extract oil from depleted fields, has raised $3.5 million in Series A funding, led by Chrysalix Energy Venture Capital.
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