This one is a slight deviation from the usual topic of all things biotech startup. We’ve been given an opportunity to look at the Greentech sector by the good folks at CB Insights, who looked at SmartGrid Investing. Now for those who’re a little less familiar with SmartGrids, I can guarantee you’re familiar with the reason for why people invest in a smarter gird: power outages. They come in all frequencies and colors, sudden and rolling, black and brown, and they are symptom of a power grid bult in the fifties, for the sixties. We’re now in the second decade of the new millennium and there’s been no serious modernization of the grid as it were. Semi-public utilities can’t or won’t upgrade their infrastructure, and even if they wanted to, it’s not entirely clear what they would do to make it better.
Now take all of this with a grain of salt – I am an a rank amateur in this field but thats what it looks like viewed through the lens of a scientist and engineer in another field. Cleantech / Greentech investing has been under pressure not dissimilar to biotech. Long adoption cycles, the all pervasive capital tightening so let’s quickly take a peek at the first half 2012 data in the report. For a full copy of the report, take a look at www.greencapitalempire.com.
We see a diversification in the number of deals, meaning that it’s almost equal parts Seed, A and B, with equal but smaller (50% smaller) parts C, D and even E rounds in Q2. Q1 Was much more binary with Seed and B dominating. However, the dollars tell a different story than that. What we see there since Q4 of 2011 is that Series B made up the majority, and I do mean majority, of the the funding $$$. An exception (but not for the better) is Q2 2012, where B dollars lose to C, D and E+ dollars.
This makes me think that similar forces are at play here as in the biotech industry. Investors seem to want to pound through their existing investments to profitability or more likely to an exit, while fewer startups are being formed. One positive for the sector, or cynically one could say a corollary of the investors efforts to push existing companies is that the number of M&A deals has broken out of the 2007 – 2009 band of ~4 transactions per year to a new band of ~10 transactions per year. It’s anyone’s guess if SmartGrid startups do find the necessary capital to survive the long commercialization timelines that are not unlike clinical trial lengths.