By Jennifer Kho

Venture-capital investment in cleantech took a 34.4 percent dive in the fourth quarter, according to a preliminary analysis the Cleantech Venture Network released Thursday.

The Ann Arbor, Michigan-based industry monitor said cleantech venture deals in North American amounted to $613 million in the fourth quarter, down from $933 million in the third quarter and from $842.7 million in the second quarter. The fourth-quarter total was up from the $502 million invested in same period last year, but the quarter-on-quarter dip was the first in more than two years.

The fourth-quarter number reveals to a significant drop in VC funding after nine straight quarterly gains. It could signal a needed correction after inflated valuations earlier in the year, or underline the connection—at least in investors’ minds—between oil prices and cleantech.

John Quealy, a principal and senior research analyst with Canaccord Adams, called the oil price a “psychological barometer” into the cleantech sector, particularly for VCs new to the area.

“We don’t get most of our electricity from oil, but the price has made some people stop and think, ‘What am I going to do at $40-a-barrel oil?’” he said. “We’re seeing a group of investors that haven’t seen a notable drop in oil [since they started investing in cleantech], and now technologies need to become a bit more scrutinized at $50 a barrel.”

But John Balbach, a managing partner with the Cleantech Group, said the investment reduction in the fourth quarter doesn’t indicate a downward trend. Instead, the third-quarter numbers represented a spike. “In Q306, we saw more large physical plant deals related to biofuels and solar signed than in prior quarters,” he said.

The Cleantech Capital Alert report written by Candace Stuart and Linda Hitchcock, director of publications and research and data specialist, respectively, for the Cleantech Venture Network, pointed to a few big deals in the third quarter that could have skewed the curve.

“The top five cleantech deals in North America in Q3 accounted for 61 percent of the $933 million cleantech investment total,” they wrote. “Headline-making venture capital raisings such as the $200 million that biofuels startup Cilion attracted heightened public awareness and interest in renewable energies…but the deals also kindled concerns over inflated valuations and a frothy market. The fourth quarter may allay some of those concerns.”

None of the fourth-quarter deals reached the $100-million mark that four deals breached in the third quarter, they wrote.

In fact, the number of deals actually grew to 74 in the fourth quarter from 47 in the third, meaning investors bet less money on more companies. The average deal size dropped from $19.9 million in the third quarter to $8.3 million in the fourth.

All good points, but they don’t explain everything. After all, even if you throw out the third-quarter numbers as exceptional, fourth-quarter investments still lagged 27.2 percent behind those in the second quarter.

And North America isn’t the only place seeing a decline in cleantech venture investing. In Europe, third-quarter investments dropped 46.3 percent in the third quarter compared to the second quarter (see Euro Cleantech Investment Drops).

In November, though, Craig Cuddeback, senior vice president of the Cleantech Venture Network, said he expected Europe investment to grow again in the fourth quarter. Fourth-quarter numbers for Europe have not yet been released.

Overall, North American cleantech investing had a good year, despite the fourth quarter. According to the network, that funding totaled $2.9 billion in 2006, a 78 percent increase from the $1.6 billion invested in 2005.