Continuing a tradition since 2007, once again we bring you some end-of-year thoughts about where we think the cleantech investment theme is going.
Our cleantech-specific analysis and advisory firm Kachan & Co. focuses on this space. We publish research reports. We get briefings from companies introducing new technology. We publish a cleantech analysis service. We’re quoted in the press. We pore over what’s going on in the world in clean/green tech markets and have made some informed calls over the years, like China’s cleantech dominance, the rise of efficiency technologies and the downturn in cleantech venture capital funding.
This year, we’re of the opinion that industry-watchers should take heart. Especially if you’ve been on the page that cleantech is past its prime or otherwise unworthy of your attention of late. Why? Because we’re more optimistic about the year ahead in cleantech than in our last two years of predictions (read 2012 and 2013), which were uncharacteristically negative for a firm that’s often been something of a cheerleader for the cleantech space.
What’s different this year? As you’ll read below, we believe the world turned an important corner in cleantech in 2013.
Gradual Recovery in 2014
If you’ve not been looking carefully into the tea leaves this past year, you may have missed the quiet recovery already underway in cleantech, a process we expect will gain even more momentum through 2014.
We had the chance to take a close look at the fundamentals of cleantech this fall in co-authoring a new (and free!) 38-page research report. Titled Cleantech Redefined: Why the next wave of cleantech infrastructure, technology and services will thrive in the twenty first century, the paper analyzes the most recent investment research available across a number of industries and major impact areas.
One section of the report compares the cleantech wave to other technology booms of the last 50 years, like the dot com boom, the networking craze, biotech, the PC and the microprocessor. We found a number of parallels and a number of reasons for optimism comparing the cycles. After 20 years in technology, personally, the more I looked at the data, the more it felt I'd seen this movie before. After an initial frothiness and correction, there’s always a resetting of expectations and execution and a gradual “climb out” of the trough. Gartner calls it a hype cycle. And climbing out of the trough is where we are today in cleantech.
The recent downturn in venture capital investing in cleantech doesn’t mean the sky is falling. The dip becomes less threatening when viewed in the historical context of how venture capital always spikes early in emerging categories, later to be augmented with other sources of capital, such as often-unreported corporate and family office investment, as industries develop. It happened in the dot com, networking, biotech and PC eras, and this transition is now well underway in cleantech, as shown below. We offer a lot more detail, with additional figures and graphs, in our report.
While venture capital was the dominant source of clean technology financing in California in 2008, it played a lesser role in 2012. Source: CB Insights, Collaborative Economics. Excludes project finance and unattributed investments.
Another takeaway from the above: Pay less attention these days to venture capital investment as an indicator of the health of the cleantech space. You risk not seeing the real picture.
In addition to an analysis of patterns in venture funding in previous bubbles vs. what’s occurring today in cleantech, our 38-page analysis on the state of cleantech today also looks at overall investment levels into clean and green innovation and projects. It contemplates what’s to be learned from models like the technology adoption life cycle (of “chasm” fame.) It factors in the recent recovery in publicly traded cleantech funds and other metrics.
In all, based on what we learned writing this report, we forecast a continued recovery in cleantech. Not an exuberant one—we’re betting those days are over—but look for a clear upward trend in many things cleantech in 2014, i.e. corporate, private equity and family office investment, venture debt, project finance, M&A, interesting new innovation, new product announcements, etc. But don’t hold your breath for classic venture investment to increase appreciably.
Term cleantech to stay alive and well
There’s been speculation about whether the term ‘cleantech’ that my previous firm is credited with coining will, or should, persist. My colleagues sometimes suggested the phrase should quietly go away—that our job was to ensure that clean and green propositions are eventually added to all products, that all forms of energy become clean, that all synthetic chemistry and toxins be replaced with natural, biological solutions because these are ultimately the less expensive and potentially only real ways to accommodate more people on the planet.
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