CleanBeta

Venture Capital Investments Reach Record High

Venture capital firms invested a record $1.6 billion in Q3 2008, up 55% from the previous quarter, in U.S. cleantech companies, according to a new analysis by Ernst & Young. A total of $3.3 billion was invested in the first three quarters of 2008, surpassing the figure for the same period last year by 71%. Despite these impressive numbers, VC investments in the US cleantech sector have not been growing as rapidly as they have in other countries.

A look at the investors in the 10 largest financings in Q3 suggests that cleantech companies are pairing venture financing with other funding sources to support their capital-intensive commercialization initiatives. Six of the 10 top deals incorporated private equity firms, hedge funds and sovereign wealth funds as first time investors in the entity. Two deals included initial investments by a strategic corporate investor.

Later-stage rounds, which increased 177% to $906 million in Q3 from $327 million in Q2, were a major driver of the investment growth. These later-stage financings accounted for 55% of total capital invested in Q3, compared to just 36% in the prior quarter. This increase comes as many cleantech companies move into the capital intensive commercialization phase. The energy efficiency sector also experienced continued growth with $186 million invested in Q3, an increase of 278% compared to the prior quarter and 48% compared to same period last year.

Generation companies attracted the most investment of any cleantech segment in Q3 — $1 billion. Solar companies took the lion’s share of these investments with $990 million invested in 14 rounds, a quarter-on-quarter increase of 66% in capital, with no change in the number of rounds. Large follow-on rounds characterized solar financings in Q3.