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August 13, 2012

Venture Capitalists Veer Toward 'Extreme Green' Construction



The trend in new construction and retrofits can only be described as “extreme green” or “net zero.” Venture capitalists have plowed more than $4 billion into the development of sustainably designed, energy efficient buildings. Now, they are looking at ground-breaking technologies to further develop this space, according to a report just released by Boston-based Lux Research.

To understand investment activity in the green buildings space, Lux Research analysts have followed 332 venture transactions— amounting to $4.06 billion in 160 companies— since 2000. Of the 332 investment rounds in companies that offer technology and materials for green buildings, 152 were series A investments and 83 were series B. Start-ups from North America have attracted 77 percent—or $3.1 billion— of the green building VC invested so far.

Last year, however, nearly 50 percent of the funding—totaling $445 million—went into 15 late-stage investments, signaling the maturation of the first wave of green building start-ups.

Meanwhile, new opportunities are emerging in a number of leading-edge areas, including integrated design, on-site power generation, energy services and the advanced building envelope.



Exterior shot of Blu Homes' Breezehouse 

“Early VC investors are looking for exits for the first wave of successful green buildings start-ups and the seeds of the next crop are being sown in on-site generation and sustainable materials,” said Lux Research Analyst Ryan Castilloux, the lead author of the report, titled, “Building a Green 21st Century: Tracking Venture Investments in Green Buildings to Uncover New Opportunities.”

Among their findings:

•   Integrated design is the future. Driven by the European Union’s aggressive energy efficiency targets, as well as similar long-term targets in the United States and elsewhere, “integrated design” will attain key importance. Innovative start-ups in this area – including Project Frog (San Francisco) and Blu Homes (Waltham, Massachusetts) – have received $84 million in VC funding since 2008.

•  On-site generation is a growth area. On-site generation materials and systems have become a hotbed for investment, raking in a combined $983 million. This sector —represented by the likes of fuel cell company Bloom Energy (Sunnyvale, California) and solar heating company Himin Solar Energy Group (Shandong, China) — has taken in $585 million, just since 2006. A new framework of incentives for on-site power generation and combined heating and energy is pushing more investment. Companies to watch include Baxi Group ((Derby, England), and WhisperGen ((Union, New Jersey),which both make micro-generators, as well as companies with systems that convert waste heat to electricity, such as ElectraTherm (Carson City, Nevada) and TAS Energy Houston).

•   Low-carbon concrete and cement: The concrete production industry accounts for approximately 4 percent of all global carbon emissions annually. Since 2005, venture capitalists have poured $114 million into seven developers. Lux expects these materials to become the norm in geographies where urban building booms are taking place, such as the BRIC nations.

•  M&A will surge. Since 2010, 11 of the 16 VC-backed companies that have exited have been acquired. In the first half of 2012, there have been four acquisitions. Other mature start-ups that are ripe acquisition targets include Digital Lumens (Boston), Redwood Systems (Chicago), Adura Technologies (San Francisco), Metrolight (Franklin, Tennessee), EnOcean (Munich), Serious Energy (Chicago), Control4 (Salt Lake City) and Aspen Aerogels (Northborough, Massachusetts).

The report is part of the Lux Research Sustainable Building Materials and the Lux Research Efficient Building Systems Intelligence services.

To see a video on Blu Homes’ iconic Breezhouse, click here.

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Edited by Allison Boccamazzo

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