Good times ahead?

What a beautiful weekend. Great weather, multiple gatherings at friends, and squeezed in a quick 5 mile run down the Huron River.

I happened to download the most recent PwC/NVCA MoneyTree Report in raw data format. A lot of interesting observations, but some are as follows:

• upward quarterly trend in total $ and # deals invested with slight dip in Q1 2010, resulting in a more favorable H1 2010 vs H1 2009 comparison.
• 2009 H1 vs 2010 H1, $ and deals:

Biotech: 35% increase, 24% increase

Financial services: 213%, 62%

Med Device/Equipment: 13%, 9%

All: 49%, 23%

• cleantech investments: higher # deals and $ invested, 64% and 203% respectively, 2009 H1 vs 2010 H1; already invested more $ as of H1 than total 2009 $.
• initial investments in 2010 H1 in Seed and Early Stage companies outweighed investments in Expansion and Later Stage companies by over 50%; there were also increases in # of deals and $ invested in Seed and Early Stage companies attracting initial investments.
• last quarter, 2010 Q2, biotech sector received the largest level of funding of all sectors- $1.3B.
• average initial investments in seed, early stage, expansion, and later stage companies in 2010 H1 were $4.5M, $3M, $7M, and $5M.
• initial investments in biotech increased by 60% and 79% in $ invested and # deals, respectively, in a 2009 H1 vs 2010 H1 comparison. 17% of the initial $ invested in 2010H1 went to biotech (at an average of $5M per deal), surpassed only by software where 18% of the initial $ invested went. Med Devices/Equipment and Healthcare services garnered 9% and 2%, respectively, of initial investments in 2010 H1.
• the largest number of deals to receive initial investments in the first half of this year were software (25%), followed by biotech (14%). Med Devices/Equipment and Healthcare Services comprised 6% and 1%, respectively, of the total number of deals to receive initial investments.
• Michigan data indicates declining $ and deals invested from 2009 Q3 ($36M; 9 deals) through 2010 Q1 ($14M; 4 deals) with an improvement in 2010 Q2 ($45M; 10 deals).

Some points to highlight:

• Quarterly trends are encouraging for early stage entrepreneurs
• Overall investment trends encouraging
• Biotech and Cleantech sectors are but 2 sectors with encouraging initial investment data; the former having particularly encouraging total investment $ data coming off of last quarter as the sector receiving the largest pool of investor $, and the latter finally getting the pickup it needs to really be impactful despite the dearth of exits in this space
• Greater investment $ and deals going to the seed/early-stage space
• Investments in Michigan remain tepid with encouraging growth in the first two quarters of this year; my assessment from speaking with investors and hearing exciting, yet-to-be-publicized news from a number of companies across the state is that we will end 2010 with many more $ and deals invested vs. 2009

Tesla IPO: A Vote for Cleantech or the Auto Industry?

As you may know by now, Tesla Motors [NASDAQ: TSLA], went public earlier this week, on June 29, in a $226M IPO. In a day when the NASDAQ lost about 4% and the Dow ~2.7%, TSLA's shares closed at $23.89, a 40% gain from a $17 open. As of June 30, their market cap is a cool $2.2B. All this despite the fact that the company has registered profits only once (last July) and lost $26M in the first quarter of this year. Keep in mind that this is a company in which Toyota, Daimler, and the DoE have invested.

Like many people watching the IPO and post-IPO rally, I too am trying to figure out whether the market rally, which saw TSLA soar in a way that reminded me of the irrational exuberance of late-90s, demonstrates bullishness on clean tech or an appetite for and confidence in the American auto industry (the last IPO in the auto industry was Ford's IPO in the late 1950s). TSLA may claim its Silicon Valley roots to distance itself from GM/Ford while comparing itself to technology giants Apple/Google, but at the end of the day, it is a car company which will have to manufacture cars and contend with fierce competition from the incumbent auto makers who are poised to enter this market. To be fair, it is too soon to read too deeply into the market rally and discern if these are long-term investors who are betting on the success of the technology and company, or those who are simply riding the wave. Additionally, it would be naive for startups and VCs, particularly those involved in high capex ventures, to start betting on an IPO exit, particularly with the characteristics of TSLA, i.e. pre-revenue, first large commercial roll-out still 2 years away, and high capex.

I believe that innovation in cleantech should and will continue. It is encouraging to see the concerted and collaborative efforts of the public and private sectors to ensure that the cleantech sector continues to grow and mature. If TSLA is eventually a success, it will be an exemplar of what public/private partnerships can achieve and, perhaps more importantly, will encourage investors and entrepreneurs alike to pursue innovation even more rigorously in this sector.