Cleantech still draws VCs with long-term view

Noone can quite agree on whether the cleantech bubble is over or not. Clearly, with the current turmoil in the markets, the time for high-profile exits of “green” companies on public markets is past. Companies including battery developer A123 Systems, biofuel maker Codex and wind power company First Wind have all put their IPO plans on ice and values of publicly-traded solar companies such as Ascent Solar, Yingli Solar or JA Solar, for example, have plummeted.  

But selected cleantech pundits still claim the sector is hot. And indeed, between the prospect of President-elect Barack Obama’s more environmentally-friendly policies and record investment noted by the Cleantech Group in the sector in the third quarter of this year–with some $2.6 million invested, a 37 percent increase over the same period a year ago–that isn’t entirely unwarranted. Still even the Cleantech Group says that the sectors’ current difficulties are a much-needed cleansing in the market.  

Jonathan Bryers, partner with London-based Carbon Trust Investments, which advises the U.K.’s Carbon Trust, told me today that investors in his sector are preparing to batten down the hatches. ”VCs are planning for extremely harsh market conditions over the next two to three years. If you’re an early-stage pre-revenue company that has not developed huge visibility, you will have a really difficult time raising funds,” says Bryers. ”I think the landscape will return to the hands of specialists and drive away some of those investors who have gotten in over the past few years.”

Clearly Carbon Trust sees itself as among those who will be left standing. The remit of the U.K. government-supported organization is to reduce carbon emissions and help develop low-carbon technologies.  As reported in my blog in late November, Carbon Trust has struck a deal in recent weeks to set up a £250 million Clean Technology Investment Fund with the government of Qatar. And only this week it lead a £3.3 million investment round in ACAL Energy, a UK-based fuel cell developer that emerged from the Carbon Trust’s own incubator.

Existing investors Carbon Trust, NorthStar Equity Investors, Rising Stars Growth Fund, Porton Capital and Synergis Technologies were joined by two new strategic investors, the Belgium-based chemical/pharmaceutical company Solvay and another fuel-cell related company that did not want its name disclosed.

ACAL says its technology insures efficient chemical reactions take place within a fuel cell’s cathode, an innovation that promises to reduce costs by 40 percent. A fuel cell, which converts the chemical energy of a fuel and an oxidant into electricity, is made up of a fuel electrode, or anode, and an oxidant electrode or cathode, that are separated by an ion-conducting membrane. Bryers says that many companies, including Dupont, have focused on technologies for improving the membrane, but that few have focused on the cathode. 

For Solvay, which contributed £1.25 million to the deal, the investment represents an opportunity to work with ACAL on developing fuel cell technology, for which it already provides the company with proton-exchange polymers, according to company spokesman Erik De Leye.   

For his part, Bryers believes the deal demonstrates how early-stage companies such as ACAL can survive the rough period to come: a mix of tapping existing investors and taking on board key strategic ones. “They (corporate investors) understand the implications of the technology and are willing to invest in it.”

It looks like VC investment in green technologies will continue on a selective basis for those willing and financially able to take a longer view.