Draper Fisher Leads 2010 Clean Energy Venture Funding

Venture capital investors poured $4.6 billion worldwide into clean energy companies last year, the most since 2004, fueled by Silicon Valley’s Draper Fisher Jurvetson and initial share offerings such as Tesla Motors Inc. (TSLA)

Private equity and venture capital funding rose a combined 28 percent from 2009 to $8.8 billion, according to an annual ranking by Bloomberg New Energy Finance.

Venture capital funding increased 71 percent over 2009 and accounted for most of the total gains, especially from U.S. companies such as Draper Fisher and VantagePoint Venture Partners, which are betting that renewable energy will deliver significant returns over the long haul. That strategy was validated by the IPO last year of Tesla.

There is a disruption happening “as we shift from fossil fuels to sustainable energy,” Don Wood, a Draper Fisher Jurvetson managing director who focuses on clean technology investments, said in an interview. “It will create many successful companies, billion-dollar opportunities. We like giant markets that are undergoing a disruption.”

Companies developing smart grid, solar or bioenergy technologies received $4.2 billion from venture investors in 2010, or about 90 percent of the money committed globally, New Energy Finance said. Investments in smart grid companies alone doubled to $2 billion from 2009, the highest level in that category since 2004, according to the league tables.

Solar Boom

“By far the largest amount of dollars have been in solar areas,” Tye Thorson, a partner at PricewaterhouseCoopers LLP, said by telephone. “Transportation and smart grid are picking up slack where it seems lesser dollars were going in.”

VantagePoint Chief Executive Officer Alan Salzman said “the turmoil in the Middle East only accentuates our need to diversify our energy sources away from oil,” leaving clean technology companies close to “people’s hearts and minds.”

Draper Fisher, of Menlo Park, California, completed the most deals among venture capital companies for the second consecutive year, with 17 separate investments, according to the New Energy Finance study. VantagePoint Venture Partners and Good Energies Inc., the investment arm of Cofra Holding AG, took the next two spots with 15 investments each.

Venture capital companies in the U.S. accounted for 221 of 293 investments last year and supplied 90 percent of the total funding. Global private equity funding was little changed at $4.1 billion.

Draper Fisher’s Portfolio

Draper Fisher Jurvetson invests about a third of its money in clean energy, and the company is optimistic its bets will pay off, Wood said. Its portfolio for the industry is “young,” he said, with just two out of 45 companies going public in the last four years, including EnerNOC Inc. (ENOC) in 2007 and Tesla.

“We have the early proof points that we are on the right track, but we have a large portfolio, and we are confident we will have exits this year and next year,” Wood said.

VantagePoint, which has funded six clean energy companies since December, anticipates that 2011 will be a “bellwether year for the industry,” Salzman said by telephone.

“We expect to invest several hundred million dollars,” he said, and expect about a half-dozen “high profile IPOs this year within our portfolio and others.”

Those deals may involve companies developing technologies in light-emitting diodes, smart grid, solar thermal, thin-film solar and biomaterials, Salzman said.

VantagePoint, of San Bruno, California, is already backing companies that work in those areas including BridgeLux Inc., Trilliant Inc., BrightSource Energy Inc., Miasole Inc. and Serious Materials Inc.

‘Significant Revenue’

“We think the interesting aspect that is developing is the maturation of the sector, and we’re seeing companies in our portfolio and others with significant revenue,” Salzman said. “The commercialization aspects of the clean tech universe are coming to the forefront.”

VantagePoint was an investor in Tesla, which has gained 40 percent since it went public in June through March 1.

Investments in clean energy “are a little different than the Internet boom, when things were really hot,” said Thorson of PwC. “There is a longer period in terms of the market accepting the technologies,” and the higher dollar investments have made venture capitalists “think twice about how long the period is going to be before they have an exit.”

Predicting the timing of exits is not easy though “we’re not in any hurry,” Wood said. “When you look at statistics, the bulk of exits are from mergers and acquisitions but the biggest successes are when companies remain independent and then go public,” he said. “In some cases, the longer they stay private the more value they can create.”

To contact the reporter on this story: {Andrew Herndon} in San Francisco at aherndon2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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