Global venture investment declines, but corporates step up and the IPO window cracks open

Venture capitalists might be running short of cash. This past quarter (Q1 2012), global venture capital investments declined 19% from the prior quarter and 31% year-over-year. On a brighter note, the total number of deals recorded in the quarter was 185, up from 176 in Q4 2011, and the tally will rise again once we round up other investors who have not yet reported all their deals for the quarter.

Despite an investor bias towards later-stage investing, early stage deals increased this quarter. The proportion of early stage deals increased from 37% (Q1 2011) to 44% (Q1 2012). The absolute number of early stage deals increased from 67 in Q4 2011 to 81 this past quarter. Huh? What’s going on? I think investors are creating a “barbell effect” – favoring hot early stage deals with repeat entrepreneurs and capital efficient business models as well as later-stage companies that already have a proven product and business model (e.g. SolarCity). In the middle, life is tougher. These “in the middle” Series B and Series C companies already have institutional investors but often are still working to remove technology and market risk from their business. They are typically pre-revenue and may have missed a launch date or two. Many of these companies will eventually be big winners, but they are not easy to finance in today’s climate.

Our newly released VC fundraising data show challenges in venture firms’ ability to raise capital from LPs. In Q1 2012, “pure play” cleantech investment firms raised $2.3 billion globally. This represents a steep drop from the recent peak of $6.7 billion raised by cleantech funds in Q2 2010. Raising a cleantech fund today is not easy – our numbers indicate it is taking GP’s more time to raise less capital than a few years ago.

However, corporates continue to invest in cleantech. In fact, our data show significant growth this past quarter in both corporate acquisitions as well as minority investments. We tracked 77 cleantech M&A transactions this past quarter with an aggregate deal value of $15 billion, a big jump from the $2.5 billion total from Q4 2011. Corporate venture capital investments also jumped from 19 deals in Q4 2011 to 33 deals this past quarter (Q1 2012).

Finally, is the IPO window (finally) opening up for cleantech startups? While not an easy deal, Enphase was able to complete its IPO. In April, we will be watching Luca Technologies, Enerkem, and Brightsource – three companies expected to price their IPOs in the coming weeks. We will also see if the recent activity inspires strong companies like SolarCity to file their own S-1’s.

i3 subscribers have access to an exclusive web briefing next Tuesday, April 10.  To learn more about subscribing, the briefing, or the i3 platform, send us an email.