by Nick Bruse

We’ve been hearing a lot about whether or whether not there is a cleantech boom on at the moment. A new report by Topline Strategy Group weighs in with evidence that no boom is occuring in VC investments. An article on red herring’s website summarises the findings from the report, namely:

Only a small fraction of the dollars VCs poured into U.S.-based companies—about $1.3 billion out of a total of $25 billion—went to cleantech investments between April 2006 and March 2007, according to Boston-based consulting firm Topline Strategy Group.

Out of the 3,400 deals examined, about 120 were made in cleantech ventures; in addition, the amount of money invested from quarter to quarter remained flat.

And the numbers show that mainstream firms are still playing catch up. Only three of the top 25 high tech and life science venture capital firms have made three or more investments in cleantech over the last year […] By contrast, clean tech-focused boutique firms topped the list of VC firms with the greatest number of cleantech deals […] all had invested in seven or more cleantechcompanies.

On the other hand in the stock market of late we have seen a surge in the prices of some solar companies recently – see Ann-Marie Flemings earlier article – and last year saw surges in biofuels stocks.

When I was thinking about booms I wanted to explore the idea further of picks and shovels sellers being the big winners in these periods. For those that aren’t familiar with this term, it basically a statement that companies selling picks and shovels achieve this providing the tools that allow the more volatile companies in the space will use to make or break their fortunes.

If we go back to an article I found written prior to the dot com bust it servers as a basis for a discussion on these issues. The intriguing article is by a journalist from Asiaweek magazine back in 2000 before the dot-com bubble burst. He slams the idea that picks and shovels were the winners in the market at the time stating. “If you follow the crowd investing in producers of picks and shovels, you will likely become the owner of property in a ghost town.” If you read through the article no doubt you’ll find some amusement in his predictions – as hindsight usually provides. But I think its worthwhile to consider taking a moment to think back to that era and determine whether its the same sentiment and mood that we are seeing today in the energy space.

In a recent podcast with Tom Konrad from Alt Energy Stocks on the The Cleantech Show we discuss his opinions on what is happening in the cleantech / clean energy sector. From his point of view there’s three drivers that are pushing investment into the sector – climate change awareness, peak oil and energy security. We brought up the issue of Picks and Shovels in the clean energy business during the show and I think we decided that perhaps the areas where thats really going to occur is in the energy efficiency sector, where some of the most crucial yet unsexy technologies exist to make a short term impact on carbon emissions.

Now back in the Internet boom days from my point of view the drivers were mainly consumerism, entertainment and interaction based. I worked for a large telecoms provider at the time and much of the hype was driven by the possibility of a new range of services to business and consumers, and too a great extent driven by companies themselves hoping to sell more ATM switches. Ultimately, the expectations outstripped much of what the technology could provide and unsustainable investment resulted in a crash which collapsed the whole commercial basis on which the boom relied.

The drivers we see now in the cleantech sector i believe are more physical and real in nature that those of the internet boom, having said that we only have to see the effect that each new report on oil or climate change has on the share prices of companies in this sector.

The other aspect that i think we have to be concerned of in this sector is the sources of information driving the belief cycle of what is really going to happen with energy markets. For many people understanding the reality of what is occuring in the main drivers listed before is all too hard. Most people would struggle to digest the stern report or IPCC report in its details . So there is a reliance on the sound bytes of reporting in the media, and from professional analysts on the sector. Or from reading opinions on blogs – an information source that wasn’t around in the dotcom boom.

Ultimately my gut is telling me what we will see is a series of surges and stability as we go through the growing pains of understanding how best to deal with climate change issues in the coming years and hopefully that we get enough scares in the short term to force us to derive alternatives to fill the gap in energy supply when the oil runs out. OR we really will run into a dire state of affairs and its all hands of humanity on deck and those who managed to make a return while the good times lasted have somewhere to spend their money.

Ultimately I think we probably need to spend less time worried about the money we can make, but worry about how our money can make a difference quickly.

Nick Bruse runs Strike Consulting, a growth venture consultancy specialising in the cleantech sector and hosts the cleantech show, a weekly podcast of interviews with leaders involved in clean technology research, entrepreneurship, commentary and investment.