New Finance Models For NW Cleantech, Sustainability As VC Wanes

Venture capital investment in cleantech was down locally and nationally for most of last year, as several firms retreated from a broad, ill-defined sector that may never have been well-suited to the typical VC model in the first place.

The trend is expected to continue this year, which means young companies looking for funding from the usual suspects will probably have a tougher time in 2013. But as with any transition, there are also reasons to be optimistic.

Seattle cleantech entrepreneurs have in their backyard one of the nation’s foremost angel investing groups, the Northwest Energy Angels. Vancouver, BC,-based venture firms like Yaletown Venture Partners and Chrysalix are among those that remain committed to the sector, and they keep a close eye on the Northwest. And large corporations are expected to continue their strategic interest in cleantech and adjacent industries, providing capital, sales channels, and the prospect of acquisitions.

More promising, say several Northwest cleantech financiers, is a broader change occurring in the vocabulary and assumptions about the enormous swath of the economy that touches energy, climate, and resource management. New ideas about innovation and capital formation in the sector are creating space for new companies and business models. To many in the Northwest, the new models are more important now than new technologies.

“If you just look at cleantech in the Northwest, it’s a pretty negative situation,” says Michael Butler, chief executive of Cascadia Capital, a Seattle investment bank active in the sector. “Not only is there not much capital, there’s not many companies.”

Michael Butler

The region is not unique in this regard.

Venture capital investment in cleantech—which includes alternative energy, storage, recycling, smart grid, transportation, and wastewater treatment, according to PricewaterhouseCoopers—was down 18 percent year-over-year through the first three quarters of 2012. Total VC investment dropped 10 percent in the same period. The Northwest, which includes Washington, Oregon, Idaho, Montana, and Wyoming, saw cleantech investing drop 71 percent, following a record 2011.

The region has seen a little over $904 million of aggregate cleantech venture capital investment since 2002, according to Thomson Reuters data compiled in the latest PwC/National Venture Capital Association MoneyTree report. That’s about 4 percent of the nearly $25 billion invested nationally during the same period, a share comparable to that of Colorado (5 percent), San Diego (4 percent), and Texas (2 percent). Silicon Valley by itself claimed 39 percent of the total in the last decade.

Kirk Washington, Seattle-based partner with Vancouver, BC, firm Yaletown Venture Partners, says he expects venture investment in cleantech to remain “subdued” in 2013. It’s normal for a new sector to go through … Next Page »

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