Ernst & Young LLP recently released an analysis of deal data for Q3 2010 equity financings for U.S. clean tech venture-backed companies, and the data show signs of significantly increasing industry volatility:
- The dollar amount of U.S. clean tech venture capital investing in Q3 2010 was down significantly on both a quarterly and year-over-year basis, with aggregate investment of $576 million in the third quarter failing to match (by a substantial margin) the $1.42 billion invested in Q2 2010 and the $1.28 billion invested in Q3 2009.
- Aggregate 2010 clean tech VC investing through Q3 2010 of $2.70 billion is nonetheless ahead of aggregate 2009 clean tech investing of $2.60 billion through Q3 2009, but well behind aggregate 2008 clean tech investing of $4.35 billion through Q3 2008.
- The data supports anecdotal evidence (see link to previous blog post here) of an industry trend toward increasing allocation of investment dollars to the energy efficiency sector, with energy efficiency investments representing 28.1% of the industry total in Q3 2010, versus only 8.3% in Q2 2010 and 11.9% in Q3 2009.
It is important to note in comparing the Q3 2010 data on a quarterly and year-over-year basis that Q2 2010 and Q3 2009 were two of the strongest quarters the U.S. clean tech industry had ever seen in terms of VC investment, ranking #2 and #4 respectively by aggregate investment dollars in the 31 quarters covered by the E&Y analysis going back to 2003. So it is not particularly surprising that Q3 2010 investment failed to meet these lofty comparables. But the size of the decline in Q3 2010 investment cannot be ignored. The $576 million invested in the quarter was the second lowest in the 11 quarters going back to 2008, and fell well short of the quarterly average of $1.11 billion invested over that time period.
It is possible that a contributing factor to the decline in Q3 2010 investment was uncertainty ahead of the November elections, and in particular the fate of Proposition 23 in California, which was a state-wide ballot measure that would have suspended implementation of California’s landmark global warming bill (AB 32 enacted in 2006) and thrown the California clean tech industry into a state of flux. Proposition 23 was defeated by a wide margin in November, with 61.5% of voters rejecting the measure, and perhaps this new regulatory certainty in the industry’s most active state — home to companies receiving more than half of all clean tech dollars invested in the United States — will help restore some of the clean tech industry’s momentum in Q4 2010.
NOTE: The E&Y analysis was based on data obtained from Dow Jones Venture Source and divides the clean tech industry into the following sectors: (i) alternative fuels, (ii) energy efficiency, (iii) energy storage, (iv) energy/electricity generation, (v) environment, (vi) industry-focused products and services, and (vii) water.
This post on Venture Capital and Clean Tech was authored by Brad Weber.