No boom today

A new report* from US tech consultancy Topline Strategy Group drops some cold water on the hype around cleantech venture investment. By Topline's figures, VCs invested $1.3 billion in North American cleantech in the year from April 2006 to March 2007. That's less than half the $2.9 billion totted up by the industry's own Cleantech Venture Network over 2006, but more than the $883 million identified by Ernst & Young (Topline ascribes the difference with E&Y to a different accounting period and a broader definition, but can't fully explain the gulf with CVN's figures).

The report scorns the hoopla to note that total investment and deal numbers have remained pretty flat each quarter, and that the sector (or investment theme, or whatever you want to call it) represents a mere 3.7% of deals and 4.9% of capital. The mainstream investors, with the exception of DFJ and Kleiner Perkins, have generally left the market to the specialists. It's all a long way from the dotcom boom/bubble - probably no bad thing.

As Topline partner Jon Klein notes in his blog:
What does this mean? From a venture capital perspective, we have barely left the starting gate of a 30 year project to build a sustainable economy and that this project is so different than what VCs have become accustom[ed] to in high tech and life sciences that it is going to take a while for them to figure it out.

The report also looks at some of the particular challenges in cleantech investment - the breadth of the sector in industrial and technological terms; the geographical diffuseness, with no dominant clusters yet emerging (probably even more of a factor in Europe than the US); and the heavy capital demands of growing companies in many areas. All of which are already familiar to the cleantech VCs I've talked to, and which would seem to reduce the likelihood of a real boom (or even bubble) at the venture level.

In the public markets, there are still some concerns about irrational exuberance in some clean sectors. Nick Bruse over on the Cleantech Blog uses the Topline report as a springboard to ponder boom dynamics from a behavioural finance viewpoint:
The other aspect that i think we have to be concerned of in this sector is the sources of information driving the belief cycle of what is really going to happen with energy markets. For many people understanding the reality of what is occuring in the main drivers [climate change awareness, peak oil and energy security] is all too hard. Most people would struggle to digest the stern report or IPCC report in its details. So there is a reliance on the sound bytes of reporting in the media, and from professional analysts on the sector. Or from reading opinions on blogs - an information source that wasn't around in the dotcom boom.
Are people really making investment decisions based on blog posts? A worrying thought...

* - Cleantech and Venture Capital: A Whirlwind Romance or Just Dating?