Is there too much capital in cleantech?

The NYT has an interesting article today describing the fact that there is too much capital chasing investments right now. This follows on the heels of an announcement by Dow Jones that they estimate there is a $53.6B capital overhang right now in the VC industry.

There seems to be too much capital chasing too few deals right now in venture capital, but is that true specifically in cleantech?

Cleantech has been described as being "underinvested" right now. According to the latest figures from Cleantech Venture Network, in 3Q04 cleantech represented only 7.2% of all VC investments. That's up from 4.2% the previous quarter.

There are two ways to look at this figure: a) Given that energy, water, etc. markets are comparable in size to IT and telecom markets, cleantech remains underserved by VC; or b) there are reasons why energy, water, etc. markets are less applicable to venture investment.

The answer is probably a bit of both. But one lesson that can be drawn is that all of this capital is going to eventually hit on cleantech and start driving up valuations just as has happened in other VC sectors. This can already be seen in some deals in the market, and in the increased interest in cleantech by "traditional" VCs...