Cleantech venture capital

11 predictions for 2011

by Rob Day, a Partner with Black Coral Capital, based in Boston.

1. The cleantech venture capital shakeout will become more obvious

I haven't seen too much written about this by those outside the industry, mostly because it's been pretty quietly done. But as we've talked about here before, there's been an exodus of investors out of the sector lately. To date, it's been mostly individuals -- either individual VCs leaving their firms, or the "cleantech guy" at diversified firms now being redirected back out of cleantech investing into other sectors. But wearing my limited partner hat, I'm seeing a whole lot of cleantech-specific firms out there or getting ready to go out there and raise new funds. And I just don't think the LP community will be able to support all of them. The big institutional LPs have been shifting away from venture capital as an asset class, and they've become more tepid about cleantech. 2010 saw a stop of any new cleantech venture firms; 2011 will see the shakeout of existing cleantech venture firms. Certainly there are a good number of cleantech-specific funds that previously had been able to raise funds simply on the basis of being cleantech specialists, but who now will be competing against each other for increasingly scarce LP dollars. And (often because of the overall VC category performance, and the lack of VC exits overall over the past decade) many won't have an advantaged track record, and won't have a really differentiated pitch versus their peers. I think it'll be lean times for many of those funds. The firms won't go away, but there may be more obvious slimming of staff as operating budgets go down and the lack of dry powder makes it less necessary to keep staff on. The good news is, given the continued need for experienced senior management at cleantech venture-backed firms, I think a lot of this will be VCs leaving to take operating roles. The other good news is that I think things will continue to get gradually better for cleantech venture fundraising.

See the other 10 predictions here.