Alongside most technology markets in early 2014, cleantech has seen a good start to the year. This has been especially important considering the weak venture capital environment surrounding the segment in 2013, when venture capital and acquisition activity took a dip in annual terms. A renewed confidence surrounding cleantech is set to drive enhanced activity among sell businesses as investors target start-ups with potential exposure to lucrative emerging markets.
According to figures released by analyst firm Clean Energy Pipeline, Q1 2014 saw a 14% year-on-year increase in global clean energy investment, reaching a global total of $61 billion. Although cleantech had a strong finish to 2013, falling technology costs and policy uncertainty in key markets suggested 2014 could be a tough year for the sector. However, the rebound can be attributed to more positive sentiments following an uptick in economic activity on the back of the fading eurozone sovereign debt crisis and an improved economic environment in the US.
Project financing is establishing itself as a strong growth area for funding cleantech ventures, with first-quarter investments through this route growing by 18% y-o-y. Governments, especially in the EU, the US and across emerging markets such as India and China, and strategic investors are increasingly more comfortable in financing projects of key interest as opposed to backing firms as a whole. Clean energy project financing has now increased for four consecutive quarters. This is likely to be the primary method of driving through major but risky energy-efficiency and renewables projects.
However, not all areas performed well and venture capital continues to be the weak link in the cleantech landscape, declining by 14% in Q1 2014 y-o-y to $1.57 billion. Equity firms increasingly believe they can see a faster and more stable rate of return in other technology areas, such as FinTech and big data, and continue to be hesitant in committing to costly and riskier cleantech start-ups. Nonetheless, some segments saw dynamic VC growth, with solar attracting some $573 million last quarter, a rise of 42% y-o-y. Corporate finance will increasingly target cleantech areas that hold practical appeal and can be implemented quickly as opposed to innovative but very long-term ventures.
Acquisitions have continued to grow as market confidence has driven activity for business transfer agents. Cleantech M&A value grew by 20% in the first quarter, driven primarily by major offshore wind deals and Google’s $3.2 billion acquisition of efficiency technologies developer Nest Labs.The IPO market has also undergone solid expansion, as clean energy firms raised $5.3 billion from IPOs, secondaries and convertible notes.
This stellar first quarter should lead to continued cleantech investment expansion in the second quarter, assuming the tension in global markets surrounding the Ukraine crisis does not interfere. Corporate finance boutiques are likely to be encouraged by the 2014 performance thus far, which is set to direct more funds to cleantech ventures.
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