Analysts warn capital-intensive clean tech firms face funding squeeze

After several quarters of optimism that clean tech firms would escape the worst of the investment slump, it appears that the downturn has finally caught up with many of the more capital-intensive clean tech projects.

According to a new report from analyst the Cleantech Group and private equity magazine Real Deals to be released tomorrow, both capital-intensive and early-stage clean tech firms are finding it increasingly difficult to secure funding from risk-averse venture capital and private equity investors.

However, the report, which is to be presented at the annual Cleantech Forum in Copenhagen, also highlighted the fact that some lower-risk clean technologies are continuing to attract interest from investors.

"Clean tech firms that can demonstrate they can deliver a quick return on investment will receive most interest from investors," the report said. " Conversely, grandiose, capital-intensive projects are likely to receive less attention. Innovations which enhance, rather than replace, existing infrastructures look particularly well placed. Among others, one potential winner is smart grid technology, which improves the efficiency of existing electricity infrastructures."

The report also predicted that early-stage companies would find it harder to attract backers, while companies with "innovations that are reaching the end of the R&D phase and serve a proven market need" are often still capable of securing funding.

Speaking to BusinessGreen.com, Richard Youngman, managing director for Europe and Israel at Cleantech Group, said that the less capital intensive a technology, the more likely it is to attract funding in the current climate.

"It's to do with capital intensity rather than future promise," he said. " Energy-generation technologies generally need to scale to make money and investors are also aware that a lot of people have already invested in the sector so they are a bit more reluctant to get involved."

He added that smart grids, technologies that improved energy and industrial efficiency, and waste management innovations offered shorter payback periods and lower risks and as such were more likely to attract investors. "If you can save people money, and show a payback period of two to three years, people are still interested," he said.

The study comes just weeks after new data from the Cleantech Group revealed that venture capital investment in clean tech firms in North America, Europe, China and India slumped during the first quarter of the year, falling 48 per cent year on year to $1bn (£677m).