Venture Capitalists Hot On Energy

Investments In Alternative Energy Increase As Gas Prices Soar

(AP) 
Other groups monitoring the market see a similar rise in spending, if not as steep. Nth Power, a venture firm focused on energy, calculates venture firms and venture arms of corporations put $690 million in emerging technology companies in 2004 and already close to $533 million through September of this year. The numbers are higher because Nth Power includes investments not only energy producers but technology companies — such as software firms — that make products for the energy business.

"There's no doubt we are seeing quite a bit more activity," says Tim Woodward, managing director at Nth Power.

Cleantech Venture Network LLC also is seeing more funding take place. The research organization says $189.4 million went into energy-related venture deals in the second quarter, up 42 percent from the first quarter. The company also uses a broad definition of an energy company that includes startups making energy-generating equipment, as well as batteries and products to improve energy efficiency, such as low-power lighting.

More money is on the way. Between 80 and 100 funds are out raising new money to invest in "cleantech," a term that includes energy companies and environmental businesses with transportation, water-purification and air-improvement projects, says Nicholas Parker, chairman of Cleantech.

The recent surge in energy investing isn't hard to understand. With oil prices around $65 a barrel, alternative-energy sources become more competitive, especially with subsidies in many countries and new subsidies in the United States.

Venture capitalists also see opportunities in the fragile power-transmission grid. "The first shock to the system was the Northeast blackout" of 2003, says Woodward. Yet, even as the health of the Earth may be under assault from global warming, the potential demand for power remains enormous.

Venture capitalists say there are good and bad sides to the surge in energy investing. On one hand, "it's easier to put together investment syndicates than it used to be," says Peter Edwards, a partner at Altira Group LLC, an energy VC. On the other, "I would say there is more competition," he says.

So far, the valuations being paid in energy deals remain reasonable. But prices are creeping higher, and some VCs say the danger of a bubble is real. Nanosolar, Miasole of San Jose, California, Energy Innovations and HelioVolt Corp. of Austin, Texas, closed on a total of $60 million in a few short weeks, leading some to suggest the category is overheated.

"I think the (solar) market will absolutely continue to grow," says Woodward. But "not every one of those companies will succeed."