September 4, 2006

Energy Venture Capital Funding Jumps in 2006

If real estate was "the long hair of the 70's", and dot-coms the 90's, then investment in alternative energy must be the dot-coms of the new millennium. And the way things are shaping up, this trend has legs.

Here are some of the ruminations published in the Boston Globe over last weekend...

Money flowing to new ideas in energy
Venture funding spikes to $445.1m

With rising energy prices stoking demand for new technologies, venture capital firms are showering attention, and hundreds of millions of dollars, on a field investors have long ignored: alternative energy.

Start-ups working with solar, battery, hydrogen, wind, and fuel cell technologies raised $445.1 million in venture funds nationally in the first six months of this year, 56.1 percent more than the $285.2 million raised by such companies in all of 2005, according to figures newly compiled by the National Venture Capital Association trade group.

At today's higher energy prices, "a lot of the things that didn't look economical in the past are starting to look more economical," said Jeff Andrews , a partner at Atlas Venture in Waltham who's been prowling for alternative energy investments.

At least some of the fervor for funding energy start-ups can be attributed to the souring of interest in other sectors of the economy.

"Venture capitalists have gone through a dry spell finding attractive investments in telecommunications and software," said Howard R. Berke , founder and chief executive of Konarka Technologies Inc., a Lowell company developing flexible plastic solar cells for use in everything from building materials to mobile phones. "They see clean energy as a new focus area."

Another factor driving alternative energy demand, and heightening investor appetite, is the subsidies and incentives offered by governments in the United States, the European Union, Russia, Japan, and China. ``It's happening on a global basis," Berke said, ``and venture capitalists recognize that when they fund a company in the renewable energy space, they're funding companies that will have a global market."

Venture capital is the perfect funding model for such companies, because venture firms are willing to make riskier longer-term investments and lose money or break even on some as long as they realize big returns on others, said Travis Bradford , founder and president of the Prometheus Institute for Sustainable Development, a research firm in Cambridge and author of the book `"Solar Revolution: The Economic Transformation of the Global Energy Industry."

A lot of venture capital is flowing into companies in this space, and not all of them are going to make money," Bradford said. "But these are major new sources of energy. If a new generation of technology can bring their cost down further and gain rapid acceptance, these companies are going to be very valuable assets."

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