When the Menlo Park-based venture firm The Westly Group raised a $160 million cleantech fund earlier this spring, one thing stood out.
Pension funds and university endowments, traditionally among the largest investors in cleantech venture funds, were absent. However, so-called “strategic investors” — particularly large, multinational corporations based overseas — were in. Of the 50 investors in the fund, the three largest were corporations: banking giant Citicorp, the German utility E.ON and the SK Group of South Korea.
“Corporate investors understand how large this market is,” Steve Westly, the firm’s founder and managing partner, said in an interview.
For Silicon Valley’s cleantech industry, the expanding role played by corporate investors is critical. The venture capital industry is shrinking, and high-profile blowups such as the bankruptcy of Fremont solar manufacturer Solyndra and the troubles of electric automaker Fisker Automotive have led some venture capitalists to sour on cleantech. Corporate investors, from leading energy companies to the nation’s biggest banks, are filling the void and providing young companies cash, connections and confidence.
Last week, San Mateo-based SolarCity, a leading installer of rooftop solar systems, announced that Goldman Sachs was financing $500 million worth of lease agreements, the largest single financing agreement for rooftop solar in the nation.
“As the VC support has wavered, a lot of strategics (corporate investors) have stepped in,” said Ben Kallo, a cleantech analyst with Robert W. Baird. “It always looks good to have a big brand-name company invest in you. A strategic can bring their contacts in the industry to the startup, and those contacts are invaluable.”
Global clean technology venture investment plunged 33 percent from 2011 to 2012, from $9.61 billion to $6.46 billion, according to the Cleantech Group, a San Francisco-based research and consulting firm. Its preliminary figures for the first quarter of this year show a nearly 30 percent drop from the $1.5 billion raised in the fourth quarter of 2012.
But corporate investment in cleantech is helping fill the gap: Of the $6.46 billion invested in 2012, $2.7 billion included corporate participation. That’s up from $1.7 billion invested in 2006 and $2.55 billion in 2010, according to the Cleantech Group.
Some corporations are investing in traditional venture capital funds. Others, including General Electric, Google (GOOG) and Shell, have created their own venture arms. Several corporations have joined forces to look for new investment opportunities, while others have made direct investments in cleantech startups with an eye toward acquisition down the road.
Among the dominant players in the field of corporate cleantech investing are ABB, the Swiss company that helps build the world’s power grids; Siemens, the German engineering conglomerate; and Schneider Electric, which specializes in energy management.
BuildingIQ, a San Mateo software company whose mission is to make commercial buildings more energy efficient, raised $9 million in January from three investors: Aster Capital, a leading corporate venture firm sponsored by Alstom, Schneider Electric and Solvay; the venture capital unit of Siemens Financial Services; and Paladin Capital.
“We’re much better off than if we’d raised traditional VC money alone,” said BuildingIQ CEO Mike Zimmerman, who used to be a venture capitalist. “For cleantech, there’s a realization that the corporate investor has a real value-add. For what we do, success is all about customers and distribution.”
The trend of corporate investment cuts across several cleantech sectors, from biofuels to batteries. St. Louis-based Monsanto, a leading producer of genetically engineered seeds and chemicals such as the herbicide Roundup, made an equity investment of an undisclosed sum in Sapphire Energy, a San Diego-based maker of algae-based biofuels. General Motors is an investor in Envia Systems, a startup based in the East Bay city of Newark that’s working on batteries for electric cars.
Google Ventures, an independent fund financed by Google, has invested in several clean-energy companies, including Palo Alto-based Nest, which makes learning thermostats, and Redwood City-based Silver Spring Networks, a leading smart grid company that celebrated its IPO in March.
“As long as the traditional venture firms remain constrained, it’s a great time for corporates with cash to do some deals,” said Sheeraz Haji of the Cleantech Group. “Corporates are really interested in startups, and startups want corporates to participate. The interest is really high on both sides.”
When Oakland-based BrightSource Energy raised more than $80 million in October, the leading investor was Alstom, the French power conglomerate. BrightSource and Alstom have now formed a partnership to construct a 121-megawatt solar thermal power plant in Israel.
In January, MidAmerican Solar, a subsidiary of billionaire investor Warren Buffett’s Berkshire Hathaway, stepped in and bought San Jose-based SunPower’s (SPWRA) Antelope Valley solar farm, currently being built on 3,200 acres in Southern California.
ABB, based in Zurich, is one of the world’s largest builders of power substations and transformers, key components of the electric grid. The company invested $20 million in Trilliant, a Redwood City-based smart grid startup. It recently announced plans to acquire Power-One, a Southern California company that makes inverters that convert solar energy to electricity, for $1 billion. Earlier this month, ABB agreed to buy Los Gatos Research, a 40-person company that makes gas analyzers used in research and environmental monitoring.
“We don’t have the same criteria as a typical Silicon Valley VC,” said Allen Burchett, senior vice president of business development for ABB North America. “We’re looking at the long-term technology play. It could be an equity investment, an acquisition, a partnership, a licensing agreement.”
Burchett said the landscape has changed significantly. Five years ago, cleantech startups tended to shy away from corporate investors.
“In 2007 and 2008, a lot of startups didn’t want to align with a corporate because it implied an acquisition,” he said. “They just wanted to talk to the VCs. But that’s changed. We get earlier calls now and earlier invitations to participate in funding rounds.”
Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.
