VC deals and related capital invested have steadily increased in the last two years; however, cleantech investment has been decreasing since 2012, with this year being the slowest since 2007, says the latest Pitchbook report. This is due in large part to unsustainable business models of emerging companies and weak cleantech investment theses. However, investors that continue to have faith in cleantech and execute on strong investment theses are reaping rewards. SJF Ventures, a top quartile fund as we've mentioned before, comes to mind showcasing an investment thesis focused on companies that are capital efficient and have business models that deliver immediate value to customers, like asset recovery, reuse and efficiency. Other notable firms that closed funds in 2013 include: Kleiner Perkins Caufield & Byers, Khosla Ventures, True North Venture Partners, Braemar Energy ventures, and EnerTech Capital Partners.

Despite the recent pullback in cleantech investing, several of the trends coming out of this Pitchbook report make us positive about the next 3 to 5 years. We view this as a financial market dip driven in part by a shift in investor strategies and the migration of venture capital from the energy production to the energy and resource demand sides. Consider the following:

  1. Cleantech Redefined. While we applaud Pitchbook for including a broad range of companies that reduce the environmental impact of human activities in their definition of "cleantech," we expect that many companies providing services and IT to energy and natural resource producers and consumers will always get overlooked or fly under the radar. Cleantech is an umbrella investment thesis developed around natural resource shortages, tying together multiple sectors, industries, markets, geographies, business models, technical disciplines, etc.
  2. Capital Migration. We've talked about this a lot – capital has shifted away from traditional sectors like solar to new areas such as water treatment and waste and energy consumption management services. Additionally VC firms have invested in a higher proportion of late-stage companies who have a track record of success.
  3. The Dip Before the Surge? Angel and seed financings have actually grown according to PitchBook, suggesting an "uptick in early stage deals" could be coming soon.
  4. Investor's Market. The dip in VC investing has been accompanied by a dip in valuations, so committed cleantech investors have a good opportunity to find bargains.
  5. Location Doesn't Matter. We've often said that cleantech is converging with all industries and the entire economy, and confirming this, we continue to see cleantech companies popping up all over the country. States like Illinois, Connecticut, Colorado, North Carolina, Wisconsin and Pennsylvania are taking an increasing share of deals from California, Texas and Massachusetts.

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