04/07/2011 10:41 am ET Updated 5 days ago

Cleantech Startups Turn To Big Companies For Capital

By Nichola Groom

Fledgling solar power companies looking to grow beyond their venture capital roots are increasingly catching the eye of deep-pocketed corporate investors.

For many startups, rounds of venture or private equity funding are thought of as stepping stones on the way to an initial public offering -- the ultimate corporate symbol of having arrived.

But a tepid investor appetite for publicly traded clean energy companies has dampened enthusiasm for splashy IPOs, leaving solar companies looking elsewhere for the large sums of money they need to build factories, construct power plants or invest in improvements to their technology.

"Clean tech generally is going to require a lot of money to advance," said Ted Roosevelt, chairman of Barclays Capital's Clean Tech Initiative. "You compare that with telecoms or the Internet revolution, and those didn't require very much money."

Specifically, Roosevelt noted that Google Inc. raised just $25 million in venture funding before going public.

Compare that with venture capital-backed BrightSource Energy Inc, which is building massive solar power plants in the California desert. Last week, Oakland, California-based BrightSource said it has raised more than $530 million in five rounds of fund-raising.

It is in these later rounds that the industry is increasingly seeing big corporations step in, as venture capital firms simply don't have the resources to fund the large-scale manufacturing needed to commercialize a nascent solar technology, for instance.

"It's pretty hopeless," Sequoia Capital's Michael Goguen said of companies looking to venture capitalists for second, third and fourth rounds of funding. "But a lot of the big energy companies are pretty interested."

Most recently, French power equipment maker Alstom SA became the second-largest shareholder in BrightSource. Including a $75 million investment announced last week, the company has thus far put $130 million into the Oakland, California-based startup. The two also have a partnership to work together on solar thermal power plants in the Mediterranean and Africa.

BrightSource has also raised money from Chevron Corp and BP Plc among other strategic investors.

In addition to helping raise cash, having a strategic investor or two can help pave the way for an eventual IPO, Roosevelt said.

"It enhances their credibility," he said.

Rather than go down that road, however, many small private companies are being folded into larger corporations. In solar, for instance, a slew of power plant developers have been snapped up by panel manufacturers. Japan's Sharp Corp., for instance, bought San Francisco-based developer Recurrent Energy for $305 million last year. Recurrent had been majority owned by Hudson Clean Energy Partners, a private equity firm based in Teaneck, New Jersey.

Neil Auerbach, a managing partner with Hudson, said his firm talks to strategic investors all the time. He added that he expects large Asian companies, particularly Chinese, to become more active in acquiring or taking stakes in U.S. clean technology companies.

Specifically, GTM Research analyst Brett Prior said Chinese solar companies like Suntech Power Holdings Co Ltd or Trina Solar Ltd could be in the market for a U.S. developer themselves. Potential acquisition targets could include Costa Mesa, California-based Axio Power Inc and San Francisco-based Foresight Renewables LLC.

But a new crop of maturing solar panel makers could make up the next wave of acquisition and investment activity in clean technology. A number of small companies manufacturing solar panels from copper indium gallium selenide, or CIGS, are working to raise the money they need to commercialize their technologies.

One of those companies, Austin, Texas-based HelioVolt Corp, has put itself up for sale and is rumored to be attracting the interest of First Solar Inc., the world's largest solar company by market capitalization.

"First Solar would be a likely acquirer in that space," said GTM's Prior, noting that CIGS panels are technologically capable of producing more electricity from the sun's light than First Solar's cadmium telluride panels. "At some point their panels will plateau in terms of their efficiency."

Another CIGS company, Germany's Sulfurcell Solartechnik GmbH, has said it is seeking a strategic partner to help it expand its production.

(Additional reporting by Braden Reddall in San Francisco)

(Editing by Gerald E. McCormick)

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