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This March, Climos – a San Francisco-based start-up bent on developing ambitious climate change mitigation solutions – announced the close of a $3.5m round of financing led by Braemar Energy Ventures.

Climos will use the money to pursue its ocean iron fertilisation technique. The idea is to distribute iron powder across the oceans, which encourages the growth of plankton that store carbon and sink to the ocean floor, sequestering the carbon.

With a growing number of start-up companies focused on climate change, entrepreneurs are ploughing their energies into developing everything from ocean-bound iron filings and second-generation biofuels to hybrid taxi fleets as well as renewable energy technologies such as solar power and wind farms.

Many of the new technologies have been backed by successful venture capital firms. In the US last year, these firms invested $2.2bn into so-called “clean-tech” companies, up 45 per cent from 2006, according to a report by PwC and the National Venture Capital Association.

This March, Climos – a San Francisco-based start-up bent on developing ambitious climate change mitigation solutions – announced the close of a $3.5m round of financing led by Braemar Energy Ventures. Climos will use the money to pursue its ocean iron fertilisation technique. The idea is to distribute iron powder across the oceans, which encourages the growth of plankton that store carbon and sink to the ocean floor, sequestering the carbon.

With a growing number of start-up companies focused on climate change, entrepreneurs are ploughing their energies into developing everything from ocean-bound iron filings and second-generation biofuels to hybrid taxi fleets as well as renewable energy technologies such as solar power and wind farms. Many of the new technologies have been backed by successful venture capital firms. In the US last year, these firms invested $2.2bn into so-called “clean-tech” companies, up 45 per cent from 2006, according to a report by PwC and the National Venture Capital Association.

Among the investors are big names such as Silicon Valley-based Kleiner Perkins Caufield & Byers, which in May launched a $700m investment fund. One-third of it will focus on start-ups developing technologies that address climate change. A separate $500m Green Growth fund will back growth-stage companies.“The degree to which the VC community has moved, especially to green tech, has been viral,” says Mark Lee, chief executive of SustainAbility, the UK-based consultancy. “And when you have some of the titans of the industry shifting a big part of their portfolios to this space, that has a big impact.”Mr Lee does add a note of caution. “The sums of money needed are massive, and the venture capital industry won’t bring the funding necessary for the scale of the transition we are talking about.”However, the power of venture capital firms to act as a catalyst for innovations addressing climate change is evident in the range and quantity of ideas emerging. “There’s an enormous number of new technologies being spun out of national labs and entrepreneurs’ garages,” says Eric Wesoff, a senior analyst at Greentechnology Media. “A huge amount of stuff is being thrown at the wall to see what’s going to stick.”In this respect, clean-tech-focused venture capital is no different from venture activity in other sectors. But, Mr Wesoff says, the sheer volume of ideas being turned out in the renewable energy sector is notable, particularly in thin film solar technology and what he calls “algaepreneurs”, entrepreneurs developing algae as a source of renewable energy.

Many of the technologies that VC firms are backing come from the offices and labs of former information technology professionals and entrepreneurs. Climos’s founders, Dan Whaley and Dick Whilden, started an online travel reservations company, GetThere, which was sold to Sabre in 2000 for $750m. So it is hardly surprising that much of the venture capital activity has been taking place in Silicon Valley. At the same time, clusters of US firms interested in clean-tech can be found around Boston, Colorado and in the Pacific north-west. But while entrepreneurial enthusiasm rides high in the US, tempering the country’s investment in clean energy start-ups has been an uncertain regulatory climate. Until recently, the main incentives – production tax credits, which give power generators a per-kilowatt-hour benefit for a certain period of operation – were set only for short time periods. By contrast, while entrepreneurial activity in green sphere has been less fevered in the UK and Europe, government incentives in countries such as Germany, which has promoted the development of a solar industry, and Spain, whose government has strongly supported wind power technology, are fostering investments in these areas. European clean-tech venture capital investment grew by 20 per cent last year over 2006, according to Cleantech Group, the research firm.“Policy creates room for broader experimentation that can tackle not just immediate eco-efficiency but also longer-term play,” says Mr Lee. “And that’s what you’re getting in Spain and Germany.”As well as drawing geographical distinctions, venture capital investments differ when it comes to approaches to climate change. While much attention has surrounded new technologies and alternative fuels, investments in energy efficiency have been less prominent.This is changing with the growing recognition that some of the new technologies are a long way from commercial viability while, in the short term, great potential lies in systems that promote energy efficiency. Research published last year by the McKinsey Global Institute found that by increasing energy productivity, the US could cut its energy demand growth by the equivalent of 11m barrels of oil a day, reducing greenhouse gas emissions by 1.3bn tonnes a year.Peter Linthwaite, managing partner of CT Investment Partners, which advises Carbon Trust Investments, points out that the business case for backing energy efficiency innovations is even stronger when an idea carries secondary benefits. He cites the example of 4energy, a company in which Carbon Trust Investments has invested. The company has developed passive cooling technology for mobile phone base stations that targets selective pieces of equipment, drastically reducing the need for large air-conditioning systems. “Not only does it save money but also you don’t need all the maintenance you have on an air-conditioning unit,” he explains. “So it also improves other aspects of the business – and that’s where you get particular interest in energy efficiency.”Moreover, while alternative or renewable fuel businesses are capital intensive, requiring new infrastructure to transmit and distribute the power generated, energy efficiency measures – which tend to work with existing systems – often need less money to get off the ground. “With energy efficiency, it’s more akin to a classic technology play in the mobile telecoms sector,” says Mr Linthwaite.Mr Wesoff believes that some tempering of the market is healthy. “In the irrational exuberance that goes along with a bubble like this, a lot of technology is liberated from labs too early and it doesn’t warrant being funded,” he says. “So there’s going to be smarter investments – and that’s probably good news.”However, with oil prices remaining volatile and companies looking to cut costs and reduce their carbon footprint, the business case for backing entrepreneurs developing green technologies remains strong. “Now is the time for brave investors to make an investment looking for an upswing in three to five years,” says Mr Wesoff. Clean-tech investors

A selection of VC firms investing in climate change solutions

AMADEUS CAPITAL PARTNERS
A Cambridge and London-based firm with investment in about 40 companies, mainly in the technology sector, across Europe and Israel.

BRAEMAR ENERGY VENTURES
From offices in New York and Boston, the firm makes early to mid-stage investments in the energy technology sector and has invested in more than 40 companies addressing stationary power, transport and portable energy applications.

CARBON TRUST INVESTMENTS
The venture capital subsidiary of the Carbon Trust, an independent body set up by the UK government to address climate change. The firm has funded 11 companies in the past five years.

FOUNDATION CAPITAL
Focused on IT, the California-based firm has since 2003 explored clean-tech investment in energy efficiency, green building materials and clean water.

GENERATION INVESTMENT MANAGEMENT
A London and New York-based investment and research group chaired by Al Gore, former US vice-president. Makes long-term investments in companies providing climate change solutions.

KLEINER PERKINS CAUFIELD & BYERS (KPCB)
The Silicon Valley firm’s Greentech Initiative focuses on both start-ups and more mature clean-tech companies. John Doerr, a partner at the firm, is a passionate advocate of clean-tech as an investment opportunity.

KHOSLA VENTURES
A firm founded in 2004 by Vinod Khosla, Sun Microsystems co-founder and former KPCB partner. It has invested in companies working on alternatives fuels, energy efficiency and new materials.

MOHR DAVIDOW VENTURES
The California-based firm’s Powering the Planet group makes clean-tech investments in addition to its portfolio in medicine and communications technology.

ROCKPORT CAPITAL PARTNERS
With offices in Boston and California, the firm focuses on funding early to mid-stage energy, environmental and advanced materials companies.

WHEB VENTURES
The UK firm is one of Europe’s largest clean-tech venture capital funds, investing in groups from initial product commercialisation to the expansion stage.

 
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