“Cleantech” has been a hot sector for investors over the past few years. A near feeding frenzy has occurred at times through a vicious cycle of investors clamoring for good cleantech ideas and entrepreneurial companies responding by stretching to pitch whatever they do as being cleantech. Thus, cleantech has come to include improved waste management, smart grid technology, energy efficient building design, green building materials, better batteries, hybrid and all-electric automobiles, and every kind of alternative energy you can think of. Companies developing solar photovoltaic technology, solar thermal energy, geothermal energy, wind energy, tidal energy, clean coal, nuclear energy, and all types of biofuel all regard themselves as “cleantech” companies. Even corn-to-ethanol companies classify themselves as cleantech, though the technology is really not new or particularly innovative.
A natural consequence of flooding the market with “cleantech” corporate entities is a large number of disappointments. I would not use the word “failures,” at least not yet, because many of these companies are still operating and may become successful. But clearly the timelines to reach profitability are longer than investors had anticipated, and as a result, valuations in many cases have been declining.
Take Solyndra, considered by many to be the leading developer of rooftop solar photovoltaic systems. Valued at more than $1 billion in 2008, the company’s valuation has dropped to around $250 million today in the wake of a cancelled IPO (Source: VentureWire). Bucking the trend somewhat have been biofuels companies like Amyris or Gevo, which had successful IPOs and saw the stock trade up in the months following their public offerings. A number of other companies focused on advanced biofuels and bio-based chemicals appear poised to do well if their technical approaches are validated.
Despite some dirty laundry getting aired, there is still plenty of cash looking for good, new cleantech ideas. Where is the money flowing now? The hottest companies now are those that can get to market without requiring large investments in manufacturing. This tends to exclude the traditional biofuels model that requires an expensive pilot plant followed by even more costly production plants. To fill this financing gap, in parallel innovative corporate financing vehicles are being developed. It is no accident that all four of the major accounting firms have established or expanded their cleantech groups to “assist” companies in financing activities. As an example, Ernst & Young has a team of 70 people working on renewable energy financing and has announced plans to expand its cleantech practices group to more than 300 specialists.
Hearing this, my first thought is the following. These cleantech companies better raise some money. All this high-priced financing help is going to require it.
