The numbers are in, and they ain't pretty. They tell us that 2012 represented the worst year for cleantech investment since the dark days of 2009. Depending on whose numbers you accept, investments in cleantech declined 28%, from $4.6 billion in 2011 to $3.3 billion in 2012 (PWC Moneytree, or MT for short), or 29% in the case of the Cleantech Group’s (CG) numbers. Meanwhile, the venture industry as a whole contracted by only 10%.
Reading news like this could get one thinking back fondly to the halcyon days of 2007, when it seemed cleantech was growing so fast as to be unstoppable. 2008 was even better; well, until Q4, when it all turned pear-shaped. So let's not go there. 2007 was awesome!
What went wrong? From $3.1 billion invested in cleantech in 2007 (MT; CG says $6.1 billion), we've declined to $3.3 billion / $6.5 billion.
Wait a second. That's not a decrease – it's an increase!
Modest, but still an increase. Five years later, cleantech has seen bust and boom and has now returned to levels consistent with its golden year.
Okay, so forget about dollars. What about deals? CG says 704 cleantech deals were completed in 2012, slightly down from 729 in 2011 but let's not forget that these numbers tend to climb after a quarter or two, meaning they will probably be about the same once the dust settles. MT shows a bigger 23% reduction, but that gap is also likely to shrink as straggling data comes in.
In comparison, 2007 saw 269 (MT) or 427 (CG) cleantech deals closed. So 2012 is actually either flat or enormously up, in terms of deals closed, from the glory days of 2007. Really.
Yet, the press and indeed the whole VC industry are saturated with a belief that the cleantech investment industry is in massive decline. Certainly the valuations we're seeing reflect this general feeling. There's no question that Series A is under particular pressure: 90% of all cleantech dollars in 2012 were invested into Series B or later financings (CG).
But what is the source of the belief? Clearly not absolute dollars invested or numbers of deals. The obvious culprit is exits.
So let's take a look at the data. The most consistent source for data here is the NVCA, who unfortunately don't have a clear differentiation for cleantech, and didn't even break out their Industrial and Energy category from the catch-all of "Non-High Tech" until 2007 (and don't even get me started on who decides what tech is "high" and what isn't). But at least they publish quarterly and are audited.
2012 saw 19 VC-backed industrial and energy acquisitions, 6 of which had disclosed values totaling over $1.2 billion. By comparison, the golden year of 2007 had 5, four of which were disclosed to total $853 million. There's more: 2012 doesn't just look good compared to 2007 – 19 is more than double the average figure for the previous 5 years, and the known M&A value was more than 50% higher than average.
How about IPOs? 2012 saw 4 VC-backed industrial and energy IPOs, raising a total of $317 million. The picture here is mixed. It's certainly way up from the zero related IPOs from 2007-2009, up from the 2 IPOs in 2011, but down from the IPO raises of 2010 and 2011. However, it's hardly anything to be more bearish about than we were in 2007.
It seems, despite the change in momentum after two strong years, there isn't much reason to believe that cleantech is a worse place to invest now than it was in 2007. One could certainly argue that expectations were inflated in 2007, and perhaps this is Gartner's Trough of Disillusionment. However, for those of us lucky enough to have raised new cleantech funds, fresh opportunities have never looked better. We have learned from the mistakes of others (and ourselves), refocused on capital efficient business plans with clear exit paths, and are investing at extremely attractive valuations. I'll certainly take today over 2007! (but it was awesome).
Disagree? Think I glossed over something? (I most certainly did!) Start a flame war in the comments below.