A 2011 Tool Kit for Savvy Cleantech Investors

3/24/11

2010 was a banner year for U.S. cleantech investment and M&A deals. The 371 mergers, acquisitions and capital-raising transactions in 2010 were a record high. The aggregate transaction volume was $14.7 billion—55 percent higher than 2009. Cleantech funding rose 65 percent, to $10.1 billion from $6.1 billion in 2009. Large-scale wind, solar and geothermal projects in the United States seeking project financing are expected to increase three fold in dollar volume over the next two years.

The numerous and powerful drivers for cleantech investment are undeniable, even with the sector’s up and down track record of investment deals. Economic advancement and urbanization are driving explosive increased energy demand, especially in the developing countries. There is pressing need to replace outmoded U.S. generation capacity. Clean energy solutions continue to drive down costs along the curve toward grid parity, while the capital and production costs of discovering, extracting, and refining fossil fuels increase. In his State of the Union speech, President Obama called for cleantech innovation, and challenged the country to get 80 percent of its energy from cleaner sources by 2035. He also called for one million electric cars on the road by 2015. Public awareness of climate change continues to motivate strong action from policy makers. Big business is committed to sustainability programs.

There is a large, robust and maturing cleantech fund universe, with specialty funds and family offices emerging as important players. The cleantech exit markets are strong and are expected to further improve. Projections for private funding of the entire cleantech value chain are off the charts.

Yet, despite all these bullish trends, moving clean technology from demonstration and proof-of-concept through the so-called “valley of death” to commercial maturity is still a challenge. Certain venture capital firms have rotated out of solar, wind, and biofuels after running head on into the capital-intensive task of scaling up a major new manufacturing plant or power-generating project. Private equity funds, while flush with dry powder, are still wary of technology and commercialization of risk when calculating potential returns. Most of the clean technologies are not yet “bankable” by large financial institutions. Government assistance, while crucial, is not available across the board.

In many ways, the drive toward commercially proven clean energy technologies has been slowed by a search for new investment models for cleantech deals.

We believe that 2011 will see the continued emergence of new financing models that … Next Page »

Steve Rowles, a partner with the Morrison Foerster law firm, is chairman of the firm’s San Diego corporate group and former co-chairman of the emerging company venture capital group and private equity fund formation group. Follow @

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