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Record Year for US Cleantech Investments with $4.7 Billion Raised from Venture Capital in 2008

SAN FRANCISCO, Feb. 3 /PRNewswire/ -- Venture capital investments in cleantech reached record levels in 2008 with $4.7 billion raised in 186 financing rounds -- a 68% increase in annual capital invested and a 5% increase in annual financing activity, according to an Ernst & Young LLP analysis based on data from Dow Jones Venture Source. Cleantech companies received $954 million from venture capitalists in Q4 2008, significantly surpassing the $681 million invested in Q4 2007, but lagging behind the record $1.7 billion invested in Q3 2008.

In 2008, the top four cleantech segments -- Electricity/Electricity Generation, Alternative Fuels, Energy Efficiency and Energy Storage -- experienced strong growth compared to 2007. Energy/Electricity Generation raised $2.7 billion in 2008, increasing 215%. The Alternative Fuels segment grew 50% to $703 million. Energy Efficiency raised $427 million, growing 6%, and Energy Storage raised $320 million, increasing 9%.

The amount of venture capital committed to cleantech in 2008 represents an investment milestone. Since 2002, when US cleantech companies raised an annual total of $234 million in venture capital, investment in the cleantech market has increased at a compound annual growth rate of 65% to reach the $4.7 billion invested in 2008. The annual number of cleantech companies securing venture financing has also grown significantly. In 2002, 43 cleantech companies raised venture capital. In 2008, 171 cleantech companies raised venture capital.

"Investments made this past quarter suggest that investors are considering industry drivers that will propel cleantech companies long after the current financial crisis recedes," says Joseph Muscat, Americas Director of Cleantech, Ernst & Young LLP. "Investors and corporate executives alike continue to focus on growing operations to respond to opportunities created by growth in global energy consumption, corporate climate change initiatives, and governmental developments."

Led by solar companies, the Energy/Electricity Generation segment again received the largest amount of VC investment with $539 million in Q4 2008, representing 57% of total capital invested. Solar investments alone raised $444 million in Q4. Three of the top five deals for all of Q4 wereCalifornia-based solar companies. The largest of these was completed by Solyndra, a company that designs and manufactures photovoltaic systems inFremont, CA, that raised $219 million.

The Alternative Fuels segment attained the second largest investment in Q4 2008 with $236 million, representing 25% of total capital invested. Biofuels raised the largest amount in this segment with $140 million. The natural gas sub-segment raised $96 million. LUCA Technologies, a biotech company that identifies new methods for creating natural gas inGolden, CO, raised $76 million, the largest deal in the natural gas sub-segment and the second largest deal overall in Q4.

Energy Efficiency was the third largest investment category, raising $68 million in Q4 2008, or 7% of total capital invested, driven by power and efficiency management services. Ice Energy, a developer of energy storage and refrigeration technologies inWindsor, CO, had the largest energy efficiency deal, raising $33 million in a third round financing.

The 2008 results also reflect the continuing trend toward a larger proportion of later stage investments as a substantial number of cleantech companies, particularly in the solar sector, reach the pilot project and commercialization stage of development. Later stage deals in 2008 accounted for 31% of the deals and 51% of the amount raised. In comparison, later stage deals accounted for only 21% of deals and 34% of amount raised in 2007.

In keeping with a trend observed in prior quarters, six of the 10 largest deals in Q4 2008 included first-time participation by private equity funds, illustrating how cleantech companies are pairing venture capital with other funding sources as they move into the capital-intensive commercialization phase.

Q4 2008 cleantech market drivers and related developments

The new Obama Administration's robust climate change agenda and economic stimulus bill are generating optimism in the cleantech community and contributing to the long-term drivers in the sector. One key policy element is a commitment to invest $15 billion a year over the next decade in renewable energy. If enacted, this proposal is expected to create five million jobs, a majority of which will be in the cleantech market. The renewable energy and energy efficiency industries already represent more than 9 million jobs and $1 trillion in US revenues, according to a report published by the American Solar Energy Society.

The economic stimulus bill currently under consideration by Congress also contains a number of tax provisions designed to spur investments in renewable energy, efficiency and other areas of cleantech. "The proposed provisions, which will accelerate the ability to utilize production tax credits, extend existing ones, and include an enhanced research and development credit, will be just the beginning of a very active year for climate change legislation," explained Steve Starbuck, Ernst & Young's Americas Tax leader for Climate Change and Sustainability Services.

Corporations continue to look to cleantech as a source of innovation. According to Ernst & Young's report, "Climate Change: The automotive industry's 100-year storm," cleantech is a key enabler to the automotive industry's response to climate change, a transformation that crosses the sector's entire value stream. Additionally, Ernst & Young's Corporate Venture Capital Survey 2008-09, revealed that 44% of respondent corporate venturing programs intend to increase their cleantech investments in the next five years.

Alternative energy merger & acquisition activity also continues to support market activity. Overall in 2008, there were 101 US deals tracked with reported transactional values of $2.3 billion, according to J.S. Herold. In Q4, 15 US deals took place with a total reported value of $399 million.

Note to editors:

Ernst & Young uses the following definitions to classify the cleantech industry and its sub-sectors:

Clean technology encompasses a diverse range of innovative products and services that optimize the use of natural resources or reduce the negative environmental impact of their use while creating value by lowering costs, improving efficiency, or providing superior performance.

    --  Alternative Fuels - Biofuels; natural gas (LNG)
    --  Energy / Electricity Generation - Gasification, tidal/wave, hydrogen,
        geothermal, solar, wind, hydro
    --  Energy Storage - Batteries, fuel cells, flywheels
    --  Energy Efficiency - Energy efficiency products, power and efficiency
        management services, industrial products
    --  Water - Treatment processes, conservation & monitoring
    --  Environment - Air, recycling, waste
    --  Industry Focused Products and Services - Agriculture, construction,
        transportation, materials, consumer products

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SOURCE Ernst & Young LLP