US VC investment in cleantech continues upward trajectory with $1.5 billion investment in Q2 2010

SAN FRANCISCO, USA: US venture capital (VC) investment in cleantech companies in Q2 2010 hit $1.5 billion in 68 financing rounds, a 63.8 percent increase in capital and a 4.6 percent increase in deals compared to Q2 2009, according to an Ernst & Young LLP analysis based on data from Dow Jones VentureSource. This was the highest level of venture funding for cleantech since Q3 2008.

Later stage venture financings were the main driver of investment growth in Q2 2010 with $891.2 million invested in 33 deals. Compared to Q2 2009, later stage activity rose 83.3% in terms of deals and 143 percent in terms of dollars. In all, later stage financings accounted for 59 percent of total funding in the quarter.

The focus on later stage investments this quarter is reflected in the fact that the top 10 deals alone amounted to $993 million, two thirds of total investment. Automotive, solar and biofuels were the main focus of the top deals. The top 10 deals also included two large second rounds.

"This quarter's investment was dominated by later stage deals as investors provided follow-on financing. Important factors included the need to bridge to strategic transactions as exit opportunities for VC-backed companies and the need to support cleantech companies as they move another step toward commercial deployment," said Jay Spencer, Ernst & Young's Americas Cleantech Director. "The continuing investor support demonstrations confidence in the industry's prospects and builds the pipeline of IPO and M&A candidates" added Spencer.

Electrification of transportation continues
The second quarter was marked by financing activity in the automotive industry. Deals in this space included the $350 million second round investment in Better Place, a Palo Alto-based provider of electric vehicle (EV) support infrastructure. The largest deal of the quarter, this investment amounted to 23 percent of total quarterly financings.

Additionally, Fisker Automotive Inc., of Irvine, CA, a plug-in hybrid EV manufacturer, raised $35 million and Eco Motors, a manufacturer of diesel engines that are fuel efficient and lower emissions, from Troy, MI, raised $23.5 million.

High level funding directed to automotive deals reflects a cross-industry belief expressed by stakeholders across the EV value chain participating in Ernst & Young's Cleantech Ignition Session on July 28: the EV industry transformation is underway and the tipping point is not far off if significant collaboration takes place throughout the US and worldwide.

Tesla Motors was also in the spotlight in Q2 as it completed an IPO and then received a $50 million strategic investment from Toyota to jointly develop electric vehicles. California-based Coulomb Technologies announced plans to provide nearly 5,000 free home and public charging stations for EVs to nine regions in the US via a partnership with auto makers, including, Ford and Chevrolet.

The momentum in EVs was underscored by President Obama's speech at the Smith Electric Vehicles factory in Kansas City, MO on July 8 where he announced that the US share of the world market for advanced batteries for electric and hybrid vehicles could grow by 20 percent, up to 40 percent of the world's market, by 2015.

Solar and alternative fuels attract big dollars, energy efficiency attracts most deals
Five of the top 10 VC deals in Q2 2010 were in the solar segment, which received $438.8 million, an increase of 182.6 percent compared to Q2 2009. BrightSource Energy Inc., an Oakland, CA company that provides solar energy to utility and industrial companies, received the second-largest deal of the quarter, a $180 million later stage round. This financing comes on the heels of the company receiving $1.37 billion in loan guarantees from the US Department of Energy to build a solar complex in the Mojave Desert.

President Obama also recently announced $2 billion loan guarantees for Abengoa Solar ($1.45 billion) and Abound Solar ($400 million) to build solar plants that are expected to create 2,000 construction jobs and 1,500 permanent jobs.

Following solar, the biofuels segment also received significant VC investments in Q2 2010 with $265.7 million, an increase of 517.2 percent compared to the same period last year.

The less capital intensive energy efficiency sector continued to receive the most deal activity. In Q2 2010 this cleantech category received $199.3 million dollars in 15 financing rounds. Corporate demand for efficiency solutions that provide a timely return on investment is a major driver of activity in the space.

Ernst & Young's study, Action amid uncertainty: the business response to climate change revealed that 82 percent of corporate executives worldwide intend to invest in energy efficiency initiatives throughout the remainder of the year and into Q1 2011.

Activity in other asset classes
Completed US new energy asset financings in Q2 2010 totaled $3.6 billion, according to Bloomberg New Energy Finance, a decrease of 38.9 percent compared to Q2 2009, but an increase of 5.3 percent compared to Q1 2010.

US mergers and acquisitions activity in Q2 2010 totaled nine deals with a disclosed value of $404 million, according to IHS Herold. M&A activity included First Solar's acquisition of NextLight in a cash transaction valued at $297 million.