Solar Industry Sees More VC Deals, But Total Investment is Down

Over the past year, the solar industry has seen the number of venture capital (VC) deals grow to record levels while the overall investment in dollars has been cut in half.

The analysis, released Tuesday by Mercom Capital Group, underscores a shift toward more, but smaller deals as the industry continues to deal with issues of overcapacity and scaled back policy.

“While VC’s interest in the solar sector remains strong, their appetite for risk appears to be lower as the average VC funding round amount in Q1 was $10 million, compared to $18 million in 2011,” said Raj Prabhu, managing partner at Mercom Capital Group. “To add to the current overcapacity problems, policy changes and lower tariff announcements in some of the largest solar markets, such as Germany and Italy, will all contribute to an uncertain 2012. We can expect a more cautious approach to investing in the solar sector this year.”

VC funding for the first quarter of 2012 came in at $329 million, the lowest quarterly total since Q4 2010, and it was well below the $658 million that came in during the first quarter of 2011. But the 34 deals funded was a record for the solar industry. For comparison, the figures for the first quarter of 2011 were achieved with 25 deals.

CIGS continued to carve out a greater share of the total funding. The top five funding deals of the quarter included CIGS companies MiaSolé, Nanosolar and AQT Solar, which together raised $94 million. The biggest single deal was for $81 million to Solar City.

Other highlights from the report:

  • There were 56 different VC investors that participated in the 34 deals. Venture capital firms that recorded multiple rounds included Black Coral Capital and Firelake Capital Management.
  • The United States continued to be the dominant country for VC investments, accounting for about 80 percent of all VC funding in the first quarter.
  • Merger and acquisition (M&A) activity in the solar sector totaled $5 billion in 15 transactions, however only four of these transactions disclosed details. The spike in M&A amounts was mainly due to the $4.7 billion acquisition of Solutia, a performance and specialty chemicals company with products in PV encapsulants, performance films for PV and CSP products and heat transfer fluids for CSP plants, by Eastman Chemicals Company.
  • Other significant M&A transactions included the $275 million acquisition of Oerlikon Solar, a producer of equipment and turnkey manufacturing lines for thin film amorphous silicon and tandem junction technology, by Tokyo Electron, and Andrem Power’s $274 million acquisition of 3W Power (a holding company of AEG Power Solutions), a provider of power controller for polysilicon production, solar inverters and monitoring and control systems for photovoltaic power plants.
  • The first quarter of 2012 also saw 11 new cleantech and solar-focused investment funds announced committing $5.7 billion.
  • A significant positive event for the solar sector in Q1 was the Initial Public Offering of the microinverter company Enphase Energy, which raised $62 million as part of its offering.
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