HIGH TECH. BIOTECH. Telecom. For venture capital firms, these once hot industries don’t hold the same money-making potential they did just a matter of months ago.
Instead, investors are eyeing a new crop of industries: fields that can either benefit from government funding (say from the stimulus package), like alternative energy, or that help consumers and businesses save time and money.
“The environment right now is a bit of a Rorschach test for entrepreneurs and investors. You can read the smoke signals any way you want,” says Simeon Simeonov, founder of executive advisory firm FastIgnite and technology advisor at Polaris Venture Partners, a venture capital firm in Waltham, Mass.
While certain businesses may be benefiting from a seismic shift in investor psychology, government spending and economic conditions, they aren’t exactly rolling in the cash. During the first quarter of 2009, venture capital funds raised $4.3 billion, down 40% year over year, according the National Venture Capital Association, or NVCA, a trade group in Arlington, Va.
Here are three industries where the remaining venture capital money is flowing:
Alternative Energy Firms
Clean-tech companies that help develop sources of alternative energy like wind, solar or battery power, or businesses that are working toward developing less fuel-reliant products like electric cars are the next big thing among VCs, says Drew Clark, director of strategy for IBM’s Venture Capital Group in San Mateo, Calif. In 2008, investment in clean-tech companies grew by 54% to more than $4 billion becoming the fastest growing segment that the NVCA tracks.
Providing an added boost: The government’s stimulus package plans to allocate $43 billion toward clean or alternative energy projects. “If the government sweetens the pot around a proven value proposition, it certainly helps,” says Clark.
In addition to landing a $535 million loan guarantee from the U.S. Department of Energy in March, Solyndra , a Fremont, Calif.-based solar panel equipment maker, has received over $600 million in VC investments from such firms as San Francisco’s CMEA Capital and Menlo Park, Calif.-based Redpoint Ventures. Nanosolar , another solar-equipment maker in San Jose, Calif., has received $500 million in funding from Menlo Park’s Benchmark Capital and Mohr Davidow Ventures.
Any company that offers consumers and businesses a way to make their dollars stretch further these days stands to benefit from increased sales – and increased investments, says Bill Reichert, managing director for Palo Alto, Calif.-based venture capital firm Garage Technology Ventures.
In Garage’s portfolio sits one prime money-saving example: Simply Hired is a job search engine that allows companies to list jobs for free. (Other sites charge for such services.) “They’re gaining market share because they offer a way cheaper way for companies to find and hire people,” he says. Between Garage, Foundation Capital and News Corp.’s Fox Interactive, the firm has collected $17.7 million in funding.
Regulatory Compliance Companies
President Obama has vowed to clean up Wall Street, add transparency to the health care industry and fix the country’s immigration mess. That means a slew of new government regulations and plenty of red tape, both of which costs businesses time and money. Any start-up that can help cut through all of that clutter is going to be in demand, says Reichert. “It is highly likely that the financial services industry will need better systems for tracking and reporting against a future set of unknown product requirements,” he says. “It’s a pretty niche company to invest in but potentially profitable.”