Challenges Ahead For Cleantech Investing

As the California Clean Energy Angel Fund that she launched five years ago winds down, Susan Preston’s analysis of the opportunity to create a second “cleantech” fund has guided her to conclude “the bloom is off the rose of clean-energy investing.”

“We have done a great deal of analysis into raising a second fund, and unfortunately, market timing is quite bad,” said Preston, the former Seattle attorney who formed the first-of-its-kind angel fund for seed and start-up stage clean energy companies in August of 2007 and became its general partner. “The public and private markets are down on clean energy and the venture model itself is

being questioned.”

Byron McCann, co-chairman of the Northwest Energy Angels, agrees with Preston’s assessment to the extent that “there isn’t the excitement in the market that there was. All the fervor and bluster have faded to the point where we do deals that make sense on their own.”

But McCann, whose angel group focuses on young “cleantech” companies in the Pacific Northwest, disagrees to the extent that he says he has seen “a robust deal flow, increased membership and angels interested in the clean-tech space.”

In fact, his angel group, formed in 2006, had its best first half this year, by July investing more than $1 million in six companies, with the investments focused on energy efficiency, green-building technology and biomass power

Preston and McCann will be together on a panel Friday in Seattle at the Northwest Energy Angels Leadership Breakfast, where the topic of discussion will be Portland author Ron Pernick’s new book, “Clean Tech Nation.”

Pernick indicated his sense that “without a concerted energy policy, pieces of the energy puzzle may be in trouble,” but added “states and cities are pushing for” clean-energy initiatives.

Pernick, Preston and McCann all agreed, in separate telephone conversations, that the erosion of venture-capital interest in clean-tech investments this year has brought challenges to the angel side of investing in the sector. Statistics indicate that venture funding in the clean-tech sector is off about 30 percent this year.

“Venture’s turn off means venture funding no longer represents second-round financing for young companies, and IPOs are not likely, so that limits the exits and that limits the interest,” Pernick said.

“Venture interest is down, but hasn’t disappeared,” said McCann. “A venture investment usually takes more money than investors anticipated and that’s even more of a challenge in clean tech, which takes more money and more time, making it more complicated than what a lot of us are used to.”

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