October 01, 2008

San Francisco Chronicle

Record capital again flows to clean tech

Clean technology startups once again raised a record amount of venture capital in the third quarter, $2.6 billion, with 42 percent of it going to companies in California, according to a new report. More than two-thirds of the funding went to firms in the United States.But problems with the U.S. financial system means the torrid pace can't continue, the report warned, potentially threatening one of the bright spots in Silicon Valley's economy."The investors we've talked to are all very worried about credit and the availability of capital," said Brian Fan, senior director of research at the Cleantech Group in San Francisco, which issued the report.But, he said, if Congress doesn't agree on a bailout plan, "All bets are off."One sector that would suffer, he said, is biofuels. "From a technology standpoint, the cellulosic guys are years away from production, and we know that this business is very capital-intensive. Big investors in first-generation ethanols (made from sugar, starch, vegetable oil or animal fat) have been burned by these investments. With the exception of algae, cellulosic ethanol will be affected."One of the quarter's top investors - Wilber James of Rockport Capital Partners - said that although investments in clean technology will continue, venture capitalists will be more cautious about their investment partners and about how much money startups need to break even. "Nobody can just assume the public markets will be available in two or three years," he said.All five of this quarter's top investors - four venture capital firms plus Google - are in the Bay Area, as are several of the companies that received investments, including Altarock Energy in Sausalito, which generates electricity from geothermal energy; Solazyme in South San Francisco, which generates fuels and chemicals from marine microbes; and OptiSolar in Hayward, which manufactures photovoltaic modules to capture energy from the sun to produce power.Even with a possible downturn, the amount of money invested in clean technology - $6.6 billion so far this year - is already larger than all of the money invested in 2007. Investments were up 17 percent over the second quarter and 37 percent over the third quarter from a year ago.The three sectors that raised the most money - thin films for capturing solar energy, smart power grids and algae for producing fuel - all did so because in each, the technology is far enough along that investors are willing to make bets on which companies will win.Gridpoint, which lets the electric power grid recognize when it's loaded and sends commands to sensors and smart thermostats to conserve power, raised $120 million from existing investors.One reason is that major auto manufacturers have announced dates for producing electric cars, Fan said, which means the grid has to be upgraded so the cars can plug in.Another catalyst is Gridpoint itself, which is trying to get a jump on competitors by acquiring other companies.Thin film solar companies raised $620 million, in part because a manufacturing process developed by First Solar and kept secret may have been cracked, Fan said.Meanwhile, investors in algae companies are betting whether the plants will be better at producing energy from sunlight or sugar, he said.Top clean technology investorsRockPort Capital Partners (Menlo Park and Boston): Deerpath Energy, Eka Systems, Enphase Energy, Hycrete, Northern Power Systems, Sustainable SpacesGoogle Inc. (Mountain View): Actacell, AltaRock Energy, Aptera Motors, Makani Power, Potter DrillingAdvanced Technology Ventures (Palo Alto and Waltham, Mass.): AltaRock Energy, Nuventix, Rive Technology, Wakonda TechnologiesKleiner Perkins Caufield & Byers (Menlo Park): AltaRock Energy, Ausra, Fisker Automotive, Flodesign Wind Turbine Corp.Khosla Ventures (Menlo Park)