Venture Capital Deal Counting: What's Really Going On Behind the Numbers?
The latest PwC Cleantech MoneyTree report came out this week, and kudos to the team there for pulling together a helpful deal tally tracker.
That resource, and the other tallies, provide a lot of useful insight on the current state of cleantech venture investing. It's especially valuable when a group like PwC that tracks venture deals broadly across all sectors does a special tally for cleantech in a cross-sectoral way. So my thanks to them for continuing to do so.
Once again, we learn why it's important to pay more attention to the deal counts than the headline-grabbing dollar totals.
The cover blurb reads: "In the fourth quarter, cleantech industry venture capital funding reached its highest level in 2013. It was also the first time in five consecutive quarters that a region received more funding than Silicon Valley." That region being, in this case, Texas.
Wow, cleantech venture dollars are significantly up, and Texas is a cleantech powerhouse!
Actually, these statements are both based predominantly upon eRecyclingCorps' $105M Series C financing from back in October. The Texas-based company raised one of the biggest venture rounds of the year, and by itself made up a quarter of all the cleantech venture dollars PwC tracked in the quarter. That's great, but as often happens, one big deal dominates the dollar-amount storyline and thus isn't representative of what most cleantech entrepreneurs are experiencing out there.
So what actually is going on, according to the PwC data? For the second consecutive year, deal counts fell significantly. In each quarter of 2013, PwC saw fewer cleantech venture deals than in the same quarter in 2012, and each of those quarters saw fewer deals than in the same quarter of 2011. This is not a healthy story.
There's an interesting graph, shown below, where you can clearly see cleantech venture deal counts, which had roughly kept pace with overall venture capital industry activity, starting to diverge in the back half of 2012. Here is the quantified evidence of what we all already know: that sometime over the past couple of years, venture capital shifted significantly away from cleantech and into other sectors.
It's not surprising. Earlier this week, I spoke at a conference for venture capital limited partners, and while everyone was polite about it, it was very clear that cleantech was very out of favor (or at least just very out-of-mind) with most of the attendees. There was a cleantech panel which was very sparsely attended (even though it was very entertainingly moderated by Greentech Media's own Eric Wesoff), and whenever I described Black Coral's focus on the sector, it was generally met with an "Oh, really? Huh" reaction.
And this is right after the big Nest acquisition headlines, which many in the room were very excited about. "Oh, but Nest isn't really cleantech, is it," said one fellow participant.
So with the LPs ignoring or pulling back from cleantech for a variety of sound and unsound reasons, it's no wonder the VCs aren't doing deals. But this has a number of important impacts on cleantech entrepreneurs.
Another graph in the PwC report tells the tale starkly: There is almost no early-stage investing in cleantech right now. Anecdotally, we're seeing lots of capital available for growth-stage startups (i.e., those with significant revenue), but Series As and Series Bs are increasingly hard to find.
Just this week, we saw DFJ make official what was already widely known: they're not going to do much in cleantech anymore. I also heard of two other firms that are known to be active still in the sector, but are actually not doing much because they're mostly out of dry powder ahead of raising their next fund. This is part of the typical cycle for venture firms, but it seems to leave only a really short list of actual, active check-writers in the sector right now.
However, it's not all gloom and pessimism out there. Cleantech may be having a rough time getting attention at the moment, but a lot of other stuff is doing just fine: big data related to buildings, transportation, agriculture; financial platforms related to solar and energy efficiency; and just about anything related to cleanweb. VCs currently love those.
So as always, don't sweat the labels. Tell investors what you do and how you're kicking butt. Leave it to us and to the PwCs of the world to spend time figuring out what to call it.
Rob Day is a Partner with Black Coral Capital, based in Boston. He has been a cleantech private equity investor since 2004, and acts or has served as a Director, Observer and advisory board member to multiple companies in the energy tech and related sectors. Rob was a co-founder of the Renewable Energy Business Network (www.rebn.org), a non-profit organization which was acquired in 2009 by ...
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