By Jennifer Kho

Cleantech venture-capital investment in China surged 159 percent last year, enabling the Asian giant to surpass Europe as the world’s second-largest destination for cleantech funding after the United States, according to a report Dow Jones VentureOne and Ernst & Young released Tuesday.  

  

China-based companies raised $221.8 million in a dozen deals last year, up dramatically from $7 million spread over five deals in 2004 and $85.5 million in five deals in 2005. The growth of funding provided to Chinese cleantech groups outstripped the growth of worldwide cleantech investment, which nearly doubled to $1.28 billion in 2006.

Ernst & Young said it expected China to play “a major role” in growing innovation in cleantech. With a massive potential market, strong natural resource constraints, and a very strong message—including defined goals—from the Chinese government about supporting clean technologies, it’s no wonder investors are interested, said Rob Day, a principal at venture-capital firm @Ventures and author of the Cleantech Investing blog.

“There’s a lot of VC interest in China, and in the markets of clean energy and water, so any chance to be able to combine those two strong trends is probably going to grab some folks’ attention—particularly in fast-growing areas where they have the capability to leapfrog existing technologies,” he said. “There is a definite market for [cleantech in China], and good technology capacities as well.”

China

That said, Mr. Day pointed out that China’s cleantech investments started from a very small base, which is part of why it looks like there’s been such rapid growth. That’s also true of the entire cleantech sector.

China

The VentureOne and Ernst & Young numbers show cleantech is still a small part of overall financings, making up $1.28 billion compared to a total of $34 billion of venture-capital invested worldwide in 2006. The total investments also grew, and exceeded the $32 billion previously forecast (see VC Investment on Track for $32B in 2006).

VC Investment on Track for $32B in 2006

European cleantech investments totaled $157 million in 38 deals, compared with $87.2 million in 32 deals in 2005. U.S. companies saw the most activity last year, raising $883.6 million in 87 deals, compared with $491.4 million in 66 deals in 2005.

The report’s numbers, however, don’t match those from other organizations, such as the Cleantech Venture Network, which reported that cleantech investments in North America alone reached $2.9 billion in 2006 (See Cleantech Grows Up, Cleantech VC Investment Falls 34% in 4Q).