Investors, policy makers and interested observers can be forgiven if they’re having a hard time determining whether they should be optimistic or pessimistic about the future of emerging companies in sustainability based on what’s going in venture capital. The best advice is probably that they shouldn’t be trying to do it at all – at least if what they’re doing is trying to inform near term decisions.
Venture capital investing is by its nature idiosyncratic. Idiosyncratic processes produce point data at odd intervals. The data produced tends to be difficult to categorize and of limited comparability. Worse, information in the world of venture capital is asymmetric in the extreme. It’s not simply that very little information is widely and readily available, it’s that so much of the information is known to only a handful of people. (Not of course, the same handful 0f people – there are lots of small chunks of information each known to a different small group of people .)
What’s going on in Venture Capital is important for the future of sustainability and sustainability investing. It’s just that limited amounts of non-comparable point data with significant information asymmetry do not make a recipe for accurate predictions of anything. So the information and “statistics” that do come out are best used to identify trends and areas for further investigation.
With that backdrop, the end of year roundups are a reasonable place to look for trend information. The Cleantech Group partners with Deloitte to publish a yearly summary of global Cleantech venture investment. Since they publicly provide aggregate data back to 2002, this is information that a lot of people see and pass on.
- The expected worldwide total of clean technology venture investment is $6 billion (once all the numbers are final).
- While that total includes government and corporate investments, it is estimated that the private sector portion of that number makes up about 25% of all private sector venture investment – a substantial amount for an investment area that was a footnote 10 years ago.
- There was a significant drop – about 30% – from 2008’s almost $8.5 billion. 30% is a level of decline that has come to be associated with a lot of benchmarks during the 2008-09 financial crash and crisis. In this case, that may actually be a positive indicator. Consider:
- A significant amount of the capital for deployment of clean technology was provided by and through major investment banks, all of which were badly hobbled and several of which disappeared
- In a four-year period from 2005 to 2008, the Cleantech Group’s figure show an increase from:
- $2 billion in 2005
- $4.5 billion in 2006
- $6 billion in 2007
- $8.5 billion in 2008
That’s bubble territory – the drop to 2007 levels may in fact be salutary. In venture capital, too much money in too short a time chasing one sector is a recipe for disaster.