Investing in Green Technology – Worth the Risk for Venture Capital Firms?

posted by Andrew Cuneo

By Brett Broesder, Account Executive in Washington, D.C.

Global economic woes have stifled the green movement on several fronts and it comes as no surprise that venture capitalists investing in green technology fall into this category.

According to the San Francisco Chronicle, in the first three quarters of 2008, green technology companies received a record $8.4 billion in venture capital. However, green technology investments fell 35 percent between the third and fourth quarters of 2008.

According to PricewaterhouseCoopers, in the first-half of 2009 venture capitalists only invested $513 million into 83 green technology companies – compared to $2 billion in 139 green tech start-ups in the first-half of 2008.

One prominent venture capitalist firm, Khosla Ventures, which is led by Vinod Khosla, is bucking this trend. In fact, just recently, Khosla Ventures announced it had raised over $1.1 billion for two funds that “will invest in green technology start-ups,” according to the New York Times.

As most venture capitalist firms shy away from high-risk alternative energy technology, Khosla taking another approach, noting “We’re really about reinventing the infrastructure of society, which is the only way we’ll get the carbon footprint down, and we’re not afraid to fail.”

Signals from Congress in Washington seem to point to green technology likely be further incentivized in the near future. Further,  if House passed cap-and-trade legislation makes it through the Senate, green energy technology start-ups will likely see a boom in business – placing Khosla Ventures in the driver seat and a plethora of other VC firms behind the curve.

Khosla seems to agree that this trend doesn’t present the risk that seems to be conventional wisdom in the venture capitalist space, “Clean-tech companies taking large amounts of money – that’s not project finance, not technical risk. That’s a differentiation most people have lost.” I agree, and hope to see others follow the road less traveled as Khosla Ventures is, which will not only benefit firms financially, but benefit the green movement by providing green tech companies the start-up money they need.

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