Venture capitalists pin growth hopes on green tech

Venture capitalists expect the green-technology area to grow faster than traditional areas of venture capital investment in the coming years.

In its annual Global Trends survey of 725 venture capitalists, Deloitte Research and the National Venture Capital Association found that over 60 percent expect investments in green tech to increase over the next three years. Medical devices, too, offer growth potential, investors think.

More mature industries, such as semiconductors and software, are seeing a slowdown in interest.

"The venture capital community continues to glom onto technologies that are truly ground-breaking technologies and are starting to leave the technologies they believe they have done as much as they can," said NVCA president Mark Heesen on a conference call.

The clean-tech area remains a favored sector for venture capital investment.

(Credit: National Venture Capital Association.)

Many green-tech companies can draw on existing IT, communications, or life sciences technologies, he added.

The general sentiment is optimistic that the second half of this year will see a higher level of investment after a sharp drop-off in the first half of this year.

The industry, however, is contracting, Hessen said with smaller firms better-positioned. Large investors, called limited partners, are investing less money into venture capital funds, Heesen noted. Meanwhile, investors expect to spend more money outside the U.S. in developing markets such as Asia-Pacific and Latin America.

Although venture capitalists are bullish on green technologies, some early forays have highlighted the financing challenges associated with investing in energy-related businesses.

Energy-related businesses tend to require a lot of money to commercialize technology. In the past few years, venture capital firms ended up putting tens or hundreds of millions of dollars into solar or biofuels companies, which is a lot more than a typical IT or social-networking company requires.

The survey indicated that most venture capitalists do not expect to have more money to invest. Many green-tech investors say that small companies and their backers need to partner with large companies, such as utilities or fuel refiners, to bring their technology into the marketplace.