July 9, 2008

Funding Rises for Clean-Tech Start-Ups

By Edward Iwata

Despite the slow economy, venture-capital funding of clean-tech start-ups in the USA and abroad is on pace for a record year, according to a report released Tuesday.

In the second quarter, venture funding for nearly 100 biofuel, solar, wind and clean-water start-ups hit a quarterly record of nearly $2 billion -- a 58% jump from the same time last year, says the Cleantech Group, a market research firm in San Francisco.

The rise in clean-tech funding comes despite a limping U.S. economy and weak markets for initial public offerings, mergers and acquisitions -- the traditional "exit strategies" for entrepreneurs and venture capitalists hoping to sell their stock publicly or sell to a larger company.

"Interest in clean tech continues to show robust growth, despite the impact of economic headwinds and credit market restraints," says John Balbach, managing partner at Cleantech.

Venture firms, start-ups and corporations are pouring more dollars into clean technologies because of higher energy and commodities prices, tightening supplies of oil, tougher regulations on carbon emissions and other economic factors, says Brian Fan, Cleantech's senior director of research.

At the same time, venture capitalists are shifting more of their assets from the traditional sectors of software, medical devices and biotechnology into the clean-tech arena in the USA, Europe, Israel, China and India.

"Investors and entrepreneurs are making two big bets," Fan says. "How do we replace coal as the primary fuel for electricity generation, and how do we replace oil as the primary fuel for transportation?"

Much of the funding is going to young companies working on:

*Solar thermal technology. Start-ups such as eSolar, SkyFuel and BrightSource Energy are building large-scale, solar thermal technology that creates steam to run turbines.

*Second-generation biofuels. Range Fuels, Aurora BioFuels, Greenline Industries and other start-ups are using algae, cellulosic ethanol and materials other than food crops.

Clean-tech investments and technologies are getting more attention mainly from companies in the auto, transport, shipping and petrochemical industries, which are paying higher prices for raw materials, Fan says.

Clean-tech start-ups still have a long way to go, though. Fan estimates it will take five to 15 years before clean-tech products and services are embraced by mainstream corporations and have a large impact on the economy and the environment.

"We're still in the very early stages of the game," Fan says. "But once growth companies prove their technologies, fine-tune their business models and build sales channels to customers, we'll start seeing a steady progression of acquisitions by large companies." (c) Copyright 2008 USA TODAY, a division of Gannett Co. Inc. <>