Cleantech sector – Predictions for VC investments in 2010

Predicting trends for the next year is a silly exercise. But oh well. We all play silly games some times. I will check back at the end of 2010 to see how wrong I may have been.

Hot in 2010:

Water: This is a darling of VCs despite the fact that very few people have actually invested in the space. But I think people will start to get their act together here finally. Invested technologies may not necessarily be in drinking water per se, which is the holy grail, but in industrial/municipal/commercial cleanup applications.

Biochemicals: Now that VCs have gone soft on biofuels, there will be more interest in the biomass to biochemicals space. DOE has 12 platform chemicals that would be high value add to make, and then there are a number of companies pursuing diff polymer chemistries. VCs like the fact that you can potentially build smaller plants that are still profitable.

Motors/generators: Old school and probably not so sexy…but markets are large, innovations have been few in the past decades, and applications in electrified vehicles to industrial robotics to high efficiency HVAC are making this an interesting segment again.

Next gen energy storage: A123 euphoria is eroding a bit (or so I hope), and people will start to look beyond Li-ion for both automotive and grid storage applications. There are some who will wait for cheap Chinese Li-ion to arrive in the US (esp for grid storage applications), but the technophiles are already looking at all solid state, metal-air and other battery chemistries.

Waste heat: We have seen a few companies invested in this space, but this will be a growing trend. Not just thermoelectrics, but also heat-engines and other mechanical technologies for utilizing low-grade and medium-grade waste heat. People will find applications in developing countries as well, e.g. India.

Small wind: Is this going to be the year that small wind technologies will finally demonstrate the performance they promise? I think we might see some interesting fundamental innovations to make it more real.

Balance of System: VCs learnt a few new words in 2009, and ‘Balance of System’ costs were among them. With pressure on solar/LEDs etc for rapid cost cutting, there will be more investments in equipment and other businesses that bring these costs down.

Not-so-hot in 2010:

Biofuels: Despite some investments in the algae fuel space in 2009, it will take some time for investor confidence to return to the biofuels space. At least a few of the companies that have now raised hundreds of million of dollars would probably need to find an exit for their investors first.

Solar PV: Another casualty of the financial downturn and the China factor in 2009. Investors remain unclear how big the technical/cost disruption needs to be for a new player to emerge successful. Investments will be slow until market conditions improve and inventory declines.

Smart grid: This must have been the hottest sector in 2009. But now there are credible worries of a hype in the sector. So I think VCs will go into a watch and track mode.

Electric cars: The year started off with new electric auto OEMs trying to raise capital as future tech platform suppliers to the big OEMs. And then the gov’t came and infused billions into them directly as well as into their suppliers. Now the same companies are gearing for an IPO, riding high on gov’t dollars.

Algae fuels: I just don’t see how the current technologies scale and become cost-effective. Is there a venture play here at all?

Concentrating PV: 2009 was a difficult year for CPV players. It was hard to raise money and they all needed to get to large scale for costs to come down. 2010 might also be a difficult year for many of them. The upfront capex is still too high compared to CSP and rapidly declining non-concentrating PV costs.

Project development: Lack of project finance scared VCs  from companies developing infrastructure projects. While project finance may start to flow (or so I hope), it will still take a while for VCs to get comfortable with such capital intensive projects. Eventually this space should see lots of action.

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10 Responses to Cleantech sector – Predictions for VC investments in 2010

  1. matthias.us says:

    I like that you listed “motors/generators,” partly because I think it’s an area few investors would look into, and partly because I think revisiting big old industries with modern tools (in this case low-cost sensors, DSPs, power semis, ambient energy harvesting components) raises the prospect of strong returns to the customer (energy $, reliability, power/weight) as well as to the investor (plain old $$).

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  4. Alex says:

    I couldn’t agree more with you on the motors/generators prediction. You might be interested in EVO Electric, which makes ultra-light motors based on Axial Flux technology. Now raising funds for a Series B (Series A was led by Imperial Innovations). Let me know if you want more information (business plan, specs, awards, etc.).
    Regards, Alex

  5. Larry Grumer says:

    It might be worth placing some thinking on small scale energy generation. I am working on a personal electronics mobile power source. i.e., “Walking Charger”. This is a footstep driven device to charge batteries as you walk. Think watts per step.

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