Last year was the second year in a row that the booming renewables sector could count on more venture capital and private equity investment, clearing the way for the “Googles of clean-tech.”
As global investment in renewables outpaced fossil fuels for the first time in 2015, venture capital and private equity investment in the renewables sector grew by a healthy 34 per cent to $3.4 billion – continuing the recovery from a dip that started in 2011.
Solar companies led the field followed by the wind sector, according to the United Nations Environment Programme’s (UNEP) annual report. A massive $2.4 billion in venture capital and private equity was invested in solar companies. This represents an increase of almost $1 billion compared to 2014, the biggest increase in seven years.
Decades of Growth
“This is the beginning of decades of growth in clean-tech venture capital and private equity, as the sector continues the shift from the school yard to the stadium,” Murray McCaig, managing partner at Toronto-based ArcTern Ventures told the Daily Planet.
“We will see many global giants arise – the Googles of clean-tech,” he said.
Early-stage venture capital investment stood out in 2015 and jumped 60 per cent, according to the UN report, followed by later stage venture capital and private equity, which tends to be focused on more mature companies.
Venture capital funding is crucial for innovative projects that need a cash-injection to develop their technologies, and get their businesses off the ground.
— BloombergNEF (@BloombergNEF) January 14, 2016
Accessing New Markets
As solar panels have become much cheaper in recent years, venture capital and private equity investors now look for companies that provide new ways to make these more affordable solar panels available to a broader range of consumers, in more countries, according to the report.
Take San Francisco headquartered Fenix International, for example. This business managed to raise $12.6 million to help it supply solar systems to off-grid communities in Uganda, the report says.
This deal also demonstrates the increasing importance of corporate venture investments for renewables start-ups, says the UNEP report, even from traditional energy companies.
— Rhumsiki (@Rhumsiki_) February 24, 2015
Investors in the Fenix funding round included Climate-KIC partner GDF Suez – operator of Europe’s biggest natural-gas network and now renamed Engie – as well as power management firm Schneider Electric and telecoms operator Orange.
“Major global companies are now thinking about how they can win the race and profit from the inevitable transition to a low-carbon global economy – this will drive demand for clean-tech innovation,” said McCaig, who also served as a jury-member to select Europe’s best clean-tech venture at Climate-KIC’s annual venture competition in 2015.
Start-Ups Grow Faster
Start-up companies like Eternal Sun were also able to grow faster as a result of the improving investment climate. Bloomberg reports the Dutch solar testing equipment business was able to take over NASDAQ-listed US rival Spire Solar for $1.5 million in January, following an earlier venture capital investment.
Both businesses develop technologies that simulate the sun, allowing solar panel producers to test their products indoors. Following the take-over, Eternal Sun is one of the largest players in the solar testing market globally. Eternal Sun is also supported by Climate-KIC.
— Dutch Consulate NY (@NLinNY) February 1, 2016
Venture capital investment in wind technology is a bit of a rarity, the report points out. Most research and development takes place in-house at mature turbine manufacturers. But the report does mention French start-up Ideol, a designer of floating foundations for offshore wind farms. Ideol secured $4.4 million in early stage funding last year.
Other examples from the report illustrate the range of technologies and services benefiting from the increased interest of investors:
- Twitter co-founder Evan Williams invested $3.5 million in US-based Sighten, which helps reduce ‘soft costs’ such as administration, processing, sales leads and customer relations, which it says are the priciest single part of installations in the US residential solar market.
- A London-based private equity firm pumped $230 million into Ostro Energy, an Indian wind developer.
- US-based Sunnova Energy closed a $300 million debt and equity funding round. The company provides third-party financing for solar leases or power purchase agreements through a network of local solar installers.
- Canada-based Enerkem, a next-generation biofiuel company, produces fuel from non-recyclable household waste, and secured $115.4 million to fund a plant in oil-rich Alberta.
- US-based Sunlight Financial, a company that provides solar panel loans – a growing market – secured private equity capital of $80 million.
- United Continental Holdings, the US-headquartered owner of the world’s second-biggest airline, invested $30 million in Fulcrum BioEnergy, a producer of jet fuel and renewable diesel from household waste.
Evan Williams’ Obvious Ventures invests in solar software company Sighten https://t.co/Apz8P23sZO
— TechCrunch (@TechCrunch) November 2, 2015
US Still Dominates
The US continues to dominate venture capital and private equity in general, and accounts for 65 per cent of this type of funding across all sectors in 2015, the report shows. But India doubled the amount of deals compared to 2014, boosted by the country’s commitments at the Paris climate change summit.
For the first time ever, China recorded more deals in a year than Europe, which experienced a small decrease in venture capital and private equity investment in renewables compared to 2014.
But Europe’s clean-tech sector in general is giving off positive signals, including venture capital firms in France where the UN climate summit took place in December. Private equity association Afic confirms that French venture capitalists invested a record-high €604 million ($656.2 million) in clean-tech companies over 2015, up by almost a third compared to the previous year.
Are you based in Europe, looking for investment and not sure where to start? Have a look at the Climate-KIC Accelerator.