Thursday, November 29, 2007

Cleantech bubble? Part 1

Cleantech VC investing continues to set records:

Clean-tech investments by U.S. venture-capital firms set a record of $2.6 billion from 168 deals in the first three quarters of 2007, according to data from Thomson Financial and the National Venture Capital Association. The level of investment represents the highest dollar volume ever, surpassing the figure of $1.8 billion for 180 deals for the full year of 2006.
Is this good news? It’s a theme I plan on returning to a great deal, but I wanted to begin discussions here. One argument is represented by the next statement from the post above:
Mark Heesen, of the National Venture Capital Association, said venture investors should exercise caution. “As has been demonstrated in the information technology and life science arenas, investing in new technologies can be fraught with pitfalls and is not for the inexperienced or the faint of heart.”
I’ve been following this meme for a while – the belief by the mainstream business media, and many VCs, that we’re in the midst of cleantech bubble. Yesterday, I sat in on a speaker who was obsessed with a bubble in this space, despite the fact that his tiny fund had no cleantech investments, and he couldn’t seem to separate over-valuation of solar companies, from the rest of the cleantech space. (in spite of what some may believe “cleantech” isn’t just solar)

As I listened, I began to wonder something: did the bursting of the 1999-2002 dot-com bubble so negatively impact the psychology of the typical VC investor (and the media that covers them), that they now see bubbles where they may be none?

After all, the 4 year dot-com excess was a unique historical event (in terms of capital raised, funds launched, investments made, and IPO exits, etc.) Now, 4 years later, it seems understandable that the next big investment opportunity might be perceived through an especially cautious and risk-averse lens. Especially given the huge volume of eager capital in this space, chasing very few opportunities

Thinking on this makes me then wonder about venture capitalism itself. Has the nature of VC changed irrevocably? Does the availability of new capital and global opportunities, mixed with the mainstreaming of what was traditionally a niche field, lead to inevitable boom/bust cycles of historic magnitude (recognizing there will always be periods of over and under-investment in various "hot" technologies).

Or is it that clean tech is the once-a-decade technological/economic/social phenomenon that leads to investor hysteria and wildly overinflated valuations and expectations?

Or is cleantech just bubbly?

As I don’t invest, nor operate in VC, it’s foolish of me to try and articulate a solid position yet. But I did find interesting what New Energy Finance had to say in its recent report: “Global Trends in Sustainable Energy Investment 2007”:
The surge in sustainable energy investment activity has led some commentators to compare it with the technology boom of the late 1990s and early 2000s. However, not only does the volume of investment flowing into clean energy dwarf the dotcom boom, clean energy sector growth has continued for longer than the dotcom boom lasted and is showing no sign of abating. Furthermore, renewable energy and energy efficiency are underpinned by real demand and growing regulatory support (which the dotcom boom did not have), as well as considerable tangible asset backing by manufacturers and project developers.
To be continued....

5 comments:

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