Wednesday, May 25, 2005

Rising valuations and cleantech

A couple of surveys announced in recent days (Fenwick & West, and VentureOne) have indicated that valuations of venture-backed companies have risen 20%-plus over the past year. VentureOne, for instance, noted that the median pre-money valuation was $15M in the last quarter, versus $12.2M in Q1 of last year. The Fenwick & West survey only covered the bay area, but pointed to much the same results.

I have not seen any breakdown which speaks to any markets other than IT, healthcare, consumer products, and "other", so it's hard to say if cleantech has been similarly affected. From anecdotal evidence, some of the same upward trend has been seen in cleantech VC, although it would appear to be very much deal-by-deal, with a few popular deals getting pretty high valuations. In sector specifics, clean energy, energy efficiency and advanced materials have been garnering significant attention, and it wouldn't be surprising to see those sectors rising in valuation. Other sectors, however, such as clean water and clean manufacturing technologies, appear to be getting relatively less attention. It is unclear to what extent any or all of the cleantech sectors are insulated from the general trend in rising valuation. However, I can tell you that our cleantech-focused firm still sees plenty of dealflow out there at reasonable valuations...

In terms of drivers of the increase in valuations, the VentureOne survey pointed to not only cyclical factors within the VC community, but also to more companies bootstrapping themselves to a later stage before going out to raise their first institutional rounds. Certainly we are seeing this trend in the cleantech markets, as more companies we track are raising funds with a solid, experienced management team in place, proven products out in the marketplace, a strong initial set of customers, and more mature technology development. It would make sense that such a company's "Series A" would be at a higher valuation than an earlier-stage company's Series A. It is a very welcome sign in cleantech investing to see more and more companies at such a mature stage.


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