Whereas green mutual funds may have been the initial precursor to green investing, sustainable investing and socially responsible investing have also contributed to the interest in green venture capital and green investments.
No longer reserved for high-tech and biotech industries, venture capital funding has been gaining steam in socially responsible investing. As consumers and businesses shift towards sustainable and social investing, green investing has emerged as a powerful VC trend, complete with its own set of rewards and risks unique to socially responsible investing..
Growing interest in investing green
With the energy crisis dotting the global decade, more venture capital firms are turning towards green investments. For example, in America alone, the amount of venture capital invested in green technology companies increased by 35% in 2005, totaling $1.6 billion, according to Cleantech Venture Network. This number is expected to increase significantly, rising to $3.4 billion by the year 2009, especially as the price of gas increases, along with consumer awareness of sustainability.
Through the third quarter of 2007, Thomson Financial and the National Venture Capital Association reported that American VC firms have hit record green investments, totaling $2.6 billion – a significant increase over 2006’s $1.8 billion. However, it is important to keep in mind that there were several large green investments funding deals in 2007.
Reviewing the data, the amount of green venture capital, along with the number of VC deals, have dramatically increased in the last several years, indicating a potential green investing mega-trend.
Leading the way, green VC firms Nth Power , Draper Fisher Jurvetson , NGEN Partners , and Mohr Davidow Ventures have powered the movement in green venture capital investing.
However, as more green VC firms grow, the traditional venture capitalists are also turning towards green technology as the next wave of innovation. For example, Kleiner Perkins Caufield & Byers, who were famous for their investments in Amazon and Google, are now boosting their involvement in green investments. In fact, in February 2006, the venture capital firm created $100 million fund specifically for green investing. In addition, Nobel Prize winner Al Gore joined the firm in 2007, adding another element of green awareness and socially responsible investing.
Where the green VC is flowing
Green venture capital investing in the United States is growing faster than any other part of the world. According to research by the Cleantech Network , in 2007, American green venture capital investments value more than three times the amount in Europe.
California, specifically in the Silicon Valley, is the strongest home of green venture capital funding. According to the NVCA , by the third quarter of 2007, approximately half of all green investments were made in California. In California, the most prominent green venture capital funded firm is Tesla Motors, who creates all-electric sports cars.
CleanTech trends: Green venture capital funded companies
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Austra: Solar thermal energy
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Fat Spaniel: Electricity demand management service
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Nanosolar: Solar cell manufacturer
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GreatPoint Energy: Coal and biomass gas conversion
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HelioVolt: Solar electricity cells produced with CIGS
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Imperium Renewables: biodiesel manufacturer
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Verdiem: PC consumption power management software
In 2008, according to NVCA 's poll of 170 venture capitalists, investors are expected to place another $27 billion into the green technology industries. In fact, 80% of all surveyed venture capitalists expect to fund additional green ventures in 2008.
Profit potential and risks with green investing
Green venture capital poses strong potential returns, especially given the sustainable movement and continuous depletion of natural resources. Like all forms of venture capital, which reside in the top pinnacle of the risk-to-reward pyramid, green investing is risky.
According to NVCA president Mark Heesen on the topic of green investing, “There are major opportunities for venture capitalists to totally reshape the energy market throughout the world as governments, consumers, and companies are demanding innovation in this space.”
For example, Investors’ Circle, the oldest angel investing firm in America, has increased its funding with green VC firms – and it has paid off handsomely. Its investments included Energia Global, a developer of renewable energy, who was acquired by the Italian utilities company Enel. In addition, they also provided green VC into Evergreen Solar, who successfully went public in 2000.
Simultaneous, as witnessed by the famed Kleiner Perkins Caufield & Byers VC portfolio, there are may be mishaps and risks along the way. For example, solar-panel manufacturer Miasole and EEStor both experienced production delays, along with changing CEOs.
On the same token, NVCA president Mark Heesen provides a word of warning for green investing, “However, as has been demonstrated in the IT and life science arenas, investing in new technologies can be fraught with pitfalls and is not for the inexperienced or the faint of heart. Prudent, long-term, knowledge based investment in cutting edge technologies has been the hallmark of venture capital in the past and should be the mantra in the CleanTech space as well. Short-term ‘tourists’ should steer clear.”
Want to get involved?
Joining a green investing VC firm is certainly an option, as long as you already have a diversified portfolio and expendable income. However, if you would like to benefit from the surge in green investing – without hundreds of thousands of dollars in investments - there certainly are other viable options for profiting from green VC.
Becoming a green venture capitalist with Investors' Circle
Contributing to green investing VC may not be as prohibitive as investors think. For a $1,195 annual membership fee, investors gain access to 300 thoroughly screened VC opportunities with Investors’ Circle. Whereas the median investment averages $250,000, some members green invest funds anywhere from $10,000 to $5 million.
CleanTech , a prominent green VC network firm, launched Cleantech Index (CTIUS) , which is now available on the American Stock Exchange – and is the basis for several ETFs. Focused on growth stocks, Cleantech represents leading clean technology companies, such as wind and solar power corporations, which on average have annual growth rates upwards of 35%. There are also several green mutual funds, along with newly developed green ETFs – all which support sustainable and renewable energy.
While consumers are going green in supermarkets, investors are hoping to earn significant returns from their green investing in VC. The trend of sustainable investing, along with consumer awareness of environmental issues, will continue to power forth the movement – and profitability – in going green. |
