Solar venture funds start slowly

Venture capital funding in the solar sector was a relatively low $329m in the first quarter of this year, according to a recent report.

Mercom Capital Group, llc, a global clean energy communications and consulting firm, just released its report on funding and mergers and acquisition (M&A) activity for the solar sector during the first quarter of 2012.

VC investors were still active in the sector with a record 34 deals funded, the highest ever recorded in the solar industry, though the size of the average deal dropped by nearly half.

While the total amount of funding dropped to al level not seen in more than a year, the number of deals increased to 34.

“While VC’s interest in the solar sector remains strong, their appetite for risk appears to be lower as the average VC funding round amount in Q1 was $10m, compared to $18m in 2011,” said Raj Prabhu, Managing Partner at Mercom Capital Group.

Policy changes globally and lower tariffs in some of the largest solar markets, such as Germany and Italy, will contribute to an uncertain 2012, Mercom says. “We can expect a more cautious approach to investing in the solar sector this year,” Prabhu said.

There was strong M&A activity in the solar sector totaling $5bn in 15 transactions, however only four of these transactions disclosed details. The spike in M&A amounts was mainly due to the $4.7bn acquisition of Solutia, a performance and specialty chemicals company with products in PV encapsulants, performance films for PV and CSP products and heat transfer fluids for CSP plants, by Eastman Chemicals.

The first quarter of 2012 also saw 11 new cleantech and solar-focused investment funds announced committing $5.7bn. One noteworthy event in the sector was the Initial Public Offering (IPO) of the microinverter company Enphase Energy, which raised $62m as part of its offering.

The top five funding deals made up about 60% of the total funding in this quarter, led by $81 million by SolarCity, a pioneer in the solar lease model. Three of the five top companies to receive funding also included MiaSolé, Nanosolar and AQT Solar

There were 56 different VC investors that participated in the 34 deals. Venture capital firms that recorded multiple rounds included Black Coral Capital and Firelake Capital Management. The United States continued to be the dominant country for VC investments, accounting for about 80% of all VC funding in the first quarter.