Gauging the Climate for the CleanTech Industry

by Meaghan Conlon

  • 15 Oct 2018
  • VC

On October 8th, the United Nations (UN) released a report regarding global warming and the effects of climate change on our planet. UN Secretary-General António Guterres stated that changes need to occur “in all aspects of society – especially in key sectors such as land, energy, industry, buildings, transport and cities” [1] and that the use of fossil fuels must be reduced while alternate sources of power, including wind and solar, are utilized more. Over the years, companies, countries and individuals have introduced clean technology and clean energy initiatives to reduce the negative environmental impacts and improve the sustainability of worldwide resources. And, while Silicon Valley specifically has been vocal about climate change since the time President Trump assumed office in 2016, the number of funds investing in clean technology and the corresponding capital that has been raised is significantly lower in 2018 than it was 10 years ago.

In 2008, venture capital firms raised $3.4bn across 25 vehicles focused on clean technology (often shorted to CleanTech), the largest of which was the $500mn KPCB Green Growth Fund, raised by Kleiner Perkins Caufield & Byers. Excluding 2009, in which 16 funds were raised, at least 22 cleantech-focused funds closed each year from 2008-2012. Following the $981mn secured by 19 funds in 2014, the number of cleantech funds raised has declined in subsequent years. In 2017, only six cleantech funds closed, just half the number raised the previous year, and attracted the lowest amount of capital ($159mn) in the past decade. During the first three quarters of 2018, five cleantech-focused funds have closed – a mere fifth of the number closed in 2008. Fundraising has also suffered: the $3.4bn raised in 2008 was nearly 10x the $384mn secured in 2018, nearly half of which was raised by Sofinnova Partner’s Sofinnova Industrial Biotech I, which closed on €125mn in March 2018.

Though not as dramatic a drop, since 2011, the number of cleantech deals completed each year has steadily declined, although 2018 is the first year with an uptick in this figure. The 308 deals completed in 2018 surpassed the 298 deals of the previous year, the lowest year for cleantech transactions in a decade. Although the industry accounted for just 2% of all deals completed in 2018, the average cleantech deal size in 2018 was $36.8mn, up 1.4% from an average transaction size of $26.4mn in 2017 and nearly double the average size of $18.9mn in 2008.

With increased emission regulation from motor companies, international agreements and a public call for sustainability, this sector is poised for expansion. There are currently 53 cleantech funds in market, targeting an aggregate of $4.1bn. Khosla Ventures VI, launched earlier this year, aims to raise $1.0bn and is currently the only fund in market targeting more than $300mn. If it achieves its goal, the fund will be one of four clean technology funds to hit or surpass the $1bn mark, following the previous success of predecessor funds, Khosla Ventures IV and Khosla Ventures V, and Breakthrough Energy’s inaugural fund, Breakthrough Energy Ventures

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