SAUSALITO, Calif - Venture capitalists searching for the next big green idea to invest in are being more cautious in their due diligence but are still more than willing to place risky bets in the emerging sector.
Four major venture capital funds -- Kleiner Perkins Caufield & Byers, Khosla Ventures, Draper Fisher Jurvetson, VantagePoint Venture Partners -- also said the funding atmosphere for green startups is improving and the valuations for many of these companies have come down from previous years.
Venture capitalists have been slow to put money into new companies during the recession because they have had trouble cashing out their previous investments.
Investment in green companies -- everything from renewable energy, electric vehicles and energy storage to effective transmission of power -- slipped in the last nine months following the economic recession and plunge in oil prices.
Venture capitalists said the tough financing atmosphere and economic downturn has made everyone cautious, but not enough to rethink their strategy in the sector.
Our strategy maybe is slightly more cautious, Vinod Khosla, Managing General Partner of Khosla Ventures, told Reuters on the sideline of an industry conference in the scenic town outside of San Francisco.
In general I don't think there's a change in what we are investing in, he said. We are still being pretty aggressive about technology risks and taking lots of technology risks.
The green technology investments of Khosla Ventures, which recently closed funds that raised more than $1 billion for renewable energy and clean technology investment, include solar thermal company Ausra, geothermal company AltaRock and biofuels makers Mascoma, Coskata, Range Fuels and Verenium.
LOWER VALUATIONS SEEN
Khosla Ventures was the second most active venture firm during the second quarter, behind Khosla's former firm and green heavyweight Kleiner Perkins Caufield & Byers.
Ray Lane, Managing Partner, Kleiner Perkins Caufield & Byers, said while the firm's strategy has not changed, the bar is much higher for investment in the green sector,
For us to make an investment in a company, whether it's the first investment or it's an investment we are doing in one of our own companies, the bar is a lot higher and the whole industry is that way, Lane told Reuters.
Lane said the venture capital industry will see some major changes in the next few years, with overall investment from the venture industry falling from $30 billion.
A healthier number would be $15 billion to $17 billion and that's the rate we are on now, he said, adding that the lower rate was a combination of investors sitting on the sidelines and limited partners of venture funds unwilling to put in more money.
Kleiner Perkins, invested in companies such as plug-in hybrid carmaker Fisker Automotive, Ausra and smart grid company Silver Spring Networks, is one of the few funds that committed to the green sector before it was hot.
Other funds, like Draper Fisher Jurvetson, are reacting to the downturn in the economy by focusing on less capital intensive businesses, according to Raj Atluru, managing director of the fund that has a third of its investment in green technology companies.
He said project financing is very hard to come by so they are more cautious.
On the bright side for venture funds, valuations of companies in the green sector, including once-hot solar firms, have come down.
Valuation in general are healthier for us as investors, said Marc van den Berg, managing Director of VantagePoint, which is invested in companies such as electric carmaker Tesla Motors and solar thermal firm BrightSource Energies.
Marc van den Berg said VantagePoint stayed away from many companies in the past couple of years because of their frothy valuations. But that has changed with the downturn in the economy.
Valuations in every sector have come down, he added.
(Editing by Phil Berlowitz)