Emailing "Has the Green Bubble Burst?"
That’s the premise behind an
article in the New York Times’ special supplement, The Business of Green, today. According to the article:
During the first quarter of 2009, investment in green technologies by venture capitalists, who drive a disproportionate amount of financing in new technologies, shriveled.
How bad was it? Venture capitalists invested $154 million in 33 startup companies in the first three months of 2009, compared with $971 million invested in 67 companies in the last quarter of 2008. That’s an 84 percent drop in financing.
These numbers are important because they reveal the extent of the damage the credit crisis has wrought on venture capitalists. We all know that it’s harder now to get a loan to do anything, but venture capital has always staked out a different piece of the market. Venture capital firms are largely unknown to the public, preferring to stay incognito under names like
Sequoia and
Cerberus. Behind these unknown names are some pretty heavy brand names like
3Com and
Avid Technology. When a company funded by venture capital becomes successful, the venture capital firm can make a lot of money by selling the company or going public. High risk, high reward.
By definition, venture capital seeks to invest in businesses that other investors would shy away from. A success rate of 10% (1 out of 10 businesses survive, the other 9 fail) would be considered an excellent rate of success for a venture capital firm. In other words, these guys (and women) invest in firms that fail, and they do it routinely! The only way that they can stay in business, however, is to access huge lines of capital. Sometimes the capital can come from other investors (so-called “angel” investors), but typically the capital comes from credit. The credit crisis has severely dried up the capital available, and venture capitalists are suddenly very cautious about where they invest their money.
Another interesting excerpt from the article:
More than half of clean-tech investments have been in alternative energy like solar and biofuels, which typically require building big factories. These projects depend on capital like project finance loans as well as tax equity investments, whereby corporations back green energy projects and reap the tax credits.
Indeed, the term “clean tech” is used loosely these days, and typically refers to solar and wind electricity production, huge projects with huge problems. What strikes me is how absent clean tech, as those of us in Green IT know it, is from venture capital’s radar. Wind, solar, and biofuel gets all the attention because it’s sexy and grabs headlines, but it seems to me that there are equally huge opportunities to be made in server virtualization, cloud computing, green data centers, client power management, and so forth. I can’t pinpoint as yet why Green IT has failed to ignite venture capital. If some of Green IT’s more aggressive ideas are to find breathing room, however, then we’ve got to start competing with solar and wind for those dollars.