As the green buildings movement matures, the next wave of venture capital will center on startups that make net-zero operations possible.
Net-zero buildings produce as much energy as they consume, requiring investments in both energy efficiency measures and in renewable energy generation.
Much of the early green buildings VC – which totaled $4 billion over the past 12 years – has gone to addressing the first problem, but that strategy is shifting, according to Lux Research.
“Early VC investors are looking for exits for the first wave of successful green buildings startups and the seeds of the next crop are being sown in on-site generation and sustainable materials,” says Ryan Castilloux, analyst for Lux Research and lead author of “Building a Green 21st Century: Tracking Venture Investments in Green Buildings to Uncover New Opportunities.”
The Lux report covers the entire landscape of technologies and materials that contribute to the green buildings landscape, including everything from home energy monitoring applications and energy-efficient lighting to sustainable construction materials.
The first wave of investments is maturing, with average deal sizes on the rise and nearly half of the deals in 2011 ($445 million) going to late-stage investments, reports Lux.
North America Captures Most Cash
Startups from North America have attracted 77% of the green buildings VC invested so far ($3.1 billion). Of the 295 transactions tracked from 2006 to the middle of 2012, 219 rounds involved North American companies.
Asia-Pacific green buildings companies netted $484 million in 16 deals since 2007, with an average deal size of $30.3 million. The largest investment since that time was $100 million, which went to Himin Solar Energy Group, a maker of solar heating systems.
Europe raised $415 million since 2002, although average deal sizes were much smaller than for Asia-Pacific. The biggest round was $59.39 million for Odersun, which makes integrated solar PV modules.
Israel has drawn more than $35 million since 2006. That money went to four startups: Metrolight (energy-efficient lighting), Phoebus Energy (hybrid water heating), Pythagoras Solar (integrated PV windows) and Panoramic Power (energy management systems).
4 Promising Future Investment Areas
Trends since 2010 suggest four emerging areas that are likely to draw more attention in the months ahead:
- Integrated Design: The European Union’s net zero energy building mandate that takes effect in 2018 and beyond coupled with similar US directives is driving investments in architects and construction companies that offer an integrated approach to energy efficiency. Two examples are Project Frog and Blu Homes.
- On-site Generation: This sector represented by the likes of fuel cell company Bloom Energy and solar heating company Himin Solar Energy Group has already taken in $585 million since 2006. A new framework of incentives for on-site power generation and combined heating and energy is pushing more investment. Companies to watch include Baxi and WhisperGen (which both make micro-generators) and companies with systems that convert waste heat to electricity such as ElectraTherm and TASenergy.
- Energy Services: SCIenergy, Seldera and Incentergy highlight this group of companies, which enable building owners to invest in efficiency and energy savings upgrades without any upfront costs. While these sorts of contracts have been available for large building owners for some time, what makes this group notable is the focus on smaller buildings.
- Low-carbon Concrete and Cement: The concrete production industry accounts for approximately 4% of all global carbon emissions annually. Since 2005, venture capitalists have poured $114 million into seven developers. Lux expects these materials to become the norm in geographies where rapid urban building booms are happening, such as China and India.
For more on the Lux Research green buildings report: