Continuing the conversation on cleantech clustering...

As discussed here and here ("griping" comment aside), there doesn't appear to be nearly as much of a cleantech cluster here in the bay area as there exists for IT and biotech. We've discussed before why that may be the case, and provided some reasons why the industry may continue to be scattered or why it may start to centralize (in which case the bay area would be a good candidate location).

It's not new, but it's worth mentioning an NRDC/ Environmental Entrepreneurs survey that was released last year, "Creating the California Cleantech Cluster." (note: opens a PDF) The author, Pat Burtis, interviewed a number of cleantech VCs (with an estimated $2.5B of cleantech-targeted funds under management) to get their thoughts on California as a cleantech investment region, and derived a few interesting tidbits, including:

• The VCs interviewed most often cited California as the most attractive region in which to make cleantech investments, twice as often as the next most attractive region (New England) was mentioned
  
• Strong VC support for public policies that position California to be in the forefront of innovative environmental regulations, to promote technology and market development
  

But the telling graph is Figure 2.2 on page 19. As a portion of total US venture investments by industry, in 2003 California received:

• 63% of all semiconductor VC funding
• 59% for computers and peripherals
• 56% for networking and equipment
• 55% for medical devices
• 43% for software and IT
• 38% for biotechnology
• 36% for telecom
• 33% for financial services
• and only 31% of total cleantech US venture investments went to California-based companies.

These are 2003 numbers, but as point of comparison California's overall share of VC funding that year was 43%, and according to the most recent Q1 numbers from Moneytree that remains the same (43.6%) today.

To some extent, the favorable view of California cleantech investing that was expressed by the VCs as described above may only reflect the fact that 11 out of the 21 VCs interviewed were California based. In fact, the fact that only 3 of the 21 were from New England, and yet New England still showed up strong in the rankings of attractive regions for cleantech investment, suggests that region has a strong pull as well. Indeed, New England took in 25% of 2003 North American VC cleantech funding versus 29% for California (note: US #s above versus North American #s here). Which of course leaves almost half of all funding going into entirely other regions altogether.

None of the above argues against the eventual development of a strong cleantech cluster in California, and the report does a good job of describing some ways that might happen over time. However, at least in comparison with other technology industries, cleantech funding does not appear to be centralized in the California region as much as one would expect.

As I said last time: To be effective -- at least at this stage in the industry's rapid, decentralized development -- cleantech investors are going to have to be willing to spend some significant time on airplanes. Because many of the more intriguing investment opportunities are going to be found outside of California and New England.