Clean tech overtakes biotech and IT as top VC sector

The global clean-tech sector has outstripped biotech and IT as the leading venture capital (VC) investment category, according to new research showing investment across the world's largest clean-tech markets rose 10 per cent during the third quarter of the year to $1.59bn (£993m).

The preliminary figures from analyst firm the Cleantech Group and consultancy Deloitte cover investments in North America, Europe, China and India. They represent the second indication this week that the market is recovering strongly, after a report from Greentech Media showed third-quarter VC investment in low-carbon technologies soared 58 per cent globally to $1.9bn.

According to the latest figures, investment was still down 42 per cent on the record levels recorded during the third quarter of 2008, but experts are convinced that the performance is evidence of a solid recovery for the sector after it was hit hard by the global financial crisis late last year.

"The billions in government funding being allocated globally in clean technology have begun emboldening private capital, which has in turn helped propel clean technology to the leading venture investment sector, now eclipsing biotech and IT," said Dallas Kachan, managing director of the Cleantech Group.

"The two largest venture deals (Solyndra and Tesla Motors) and the largest IPO (A123Systems) this quarter were all recipients of US government funding."

He added there was also evidence that the momentum in the market was likely to continue, noting that there had been hundreds of millions of dollars in new venture funds created in the past three months, "including $1.1bn in two new funds by Khosla Ventures alone".

Scott Smith, US leader of Deloitte's clean-tech practice, agreed that government intervention had played a major part in restoring confidence in the sector after investment levels plummeted during the first quarter of the year.

"The extension of tax credits for renewable-based power generation along with government stimulus and regulatory requirements to meet renewable portfolio standards are helping to drive continued investment" he said, adding that large utilities were increasingly joining VCs as major investors.

"Utilities are increasingly bringing their access to capital to the sector through direct investment and power-purchase agreements, driving new projects and increased capacity. We continue to see utilities investing in wind and solar and expect this trend to continue as clean-tech projects become more economically viable and desirable for utilities."

Solar technologies continued to dominate the market with $451m worth of investment representing 28 per cent of all VC clean-tech spend during the third quarter. Transportation-related technologies attracted $383m, while green building firms rounded out the top three with $110m.

The US further cemented its dominance of the clean-tech market with North America accounting for over two-thirds of all VC clean-tech spend during the quarter. However, Europe also posted a strong performance, with investment rising 61 per cent to $457m.