With fossil fuels growing scarce and global warming concerns on the rise, you might think investing in wind power, solar and biofuels would be a no-brainer for Silicon Valley.

But venture capitalists here and around the country are bailing out of cleantech in droves, spooked by low returns and an uncertain political landscape.

"It's quite worrisome," said Dan Reicher, head of the Steyer-Taylor Center for Energy Policy at Stanford and a former assistant secretary in the U.S. Department of Energy. "There are serious economic, environmental and security needs in the clean energy area, and the venture community has been vital in recent years in getting these technologies started."

New figures from the National Venture Capital Association paint a sobering picture: Investments in alternative energy and related fields have dropped for five of the past six quarters. The $368 million that venture firms poured into cleantech in the first three months of this year was roughly a third of the total from the same period in 2012.

Since venture capitalists often make the earliest bets on new technologies, Reicher and others worry that if the trend continues, many emerging companies that are tackling a host of environmental problems could die on the vine. Other startups might never be funded at all.


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Tracy Lefteroff, who heads the nationwide venture capital practice for PricewaterhouseCoopers, wonders whether the venture industry has enough money to keep funding green startups, which often require huge infusions of cash to grow, without help from deeper-pocketed private equity firms and government entities.

The problem, he said, is that those big investment firms tend to focus on mature companies that are generating significant revenue, and there are few of those in cleantech. Meanwhile, more government investment seems increasingly far off as congressional Republicans demand answers about the failure of Fisker Automotive.

The Southern California maker of high-end hybrid cars was awarded $529 million in federal loans but recently laid off most of its workers and appears headed for bankruptcy. Its collapse came barely 18 months after Fremont-based Solyndra abruptly shut down, despite an equivalent infusion of taxpayer-backed loan guarantees.

Solyndra was one of many solar-panel makers to have struggled for traction against cheaper imports from China. But it, too, became a partisan football, with Republicans accusing the Obama administration of rushing the loan approvals for political purposes.

Such high-profile failures have dampened good news such as the recent stock debuts of Silver Spring Networks and SolarCity.

And it doesn't help that those two companies have seen their aftermarket performance vary wildly: SolarCity of San Mateo, which installs solar energy systems for homes, businesses and military bases, has seen its stock price triple since its December IPO. But shares of Redwood City-based Silver Spring, a maker of "smart grid" technology for big utilities like PG&E, are down 25 percent compared with their first-day close in March.

Cleantech supporters argue that it's risky to draw conclusions about the sector on such limited data.

Vinod Khosla, one of Silicon Valley's highest-profile cleantech investors, wrote in a recent op-ed in Forbes magazine that many of the pundits sounding cleantech's death knell rushed to jump on its bandwagon just a few years ago.

And to be sure, the retreat from cleantech has mirrored an overall pullback in venture capital. Nationwide venture funding declined in 2012 for the first time in three years.

Even against that backdrop, though, cleantech's plunge has been steepest.

Venture firms that are sticking with the sector are focusing on deals outside its traditional emphasis on solar and wind power. Khosla Ventures, for instance, invests in technologies ranging from LED lighting to batteries to agriculture that's less dependent on chemical fertilizers.

Josh Green, who heads the clean energy practice at Mohr Davidow Ventures, said other cleantech companies are beginning to pursue less ambitious business models. Rather than trying to create alternative fuels, for instance, entrepreneurs are looking for ways that computing and the Internet can make traditional activities more energy-efficient.

Green said such ideas run the gamut from bike-sharing services like Spinlister to technology that helps small power plants at hospitals and universities "talk to each other, and ultimately, to the electric grid."

Still another approach is for entrepreneurs and investors to team up with big companies to build specific solutions for their energy management needs. Green offered the example of a startup that might be formed to help a chemical manufacturer develop products based on biofuels rather than petroleum.

He also was heartened by last week's news that electric-car maker Tesla Motors (TSLA) had notched its first profitable quarter. "For all the grief that's been heaped on the clean technology world, this is a huge emerging success," said Green, whose firm is not an investor in Tesla.

"What we need to see," he added, "are more success stories."

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.