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Smart grid venture capital (VC) funding in the third quarter of this year (Q3'13) totaled $65 million in 12 deals, compared to $50 million in 10 deals in Q2'13, according to a new report from Mercom Capital Group. That's a 30% rise. However, the report notes that VC funding in the sector has remained flat at this level over the last eight quarters, with the exception of Q3'12, when $238 million was raised.

"Smart grid VC funding took off in 2009 after $4.3 billion in federal stimulus funding was announced through the American Recovery and Reinvestment Act for the purpose of grid modernization," explains Raj Prabhu, CEO and co-founder of Mercom. “Smart grid funding levels remained high until the second quarter of 2011 and began declining from there as stimulus funding tapered.

“Investors have not seen a lot of successful exits, or exits are taking too long for VCs,” Prabhu continues. In order for investments to pick back up, he says, “Customers have to see return on their investments and the industry has to figure out a winning way forward with clear market direction, while grappling with issues like integration and converting mountains of data into useful applications.”

The report says total corporate funding in the sector in Q3’13 was $129 million, including $64 million raised in what Mercom says is a rare initial public offering (IPO).

According to the report, the top 5 VC deals were led by Space-Time Insight. The company raised $20 million from London-based private equity fund Zouk Capital, which joined current investors Opus Capital Ventures, EnerTech Capital and Novus Energy Partners. On-Ramp Wireless raised $15 million from new investor Enbridge along with existing investors Third Wave Ventures and Energy Technology Ventures. This brings the total amount raised in its Series C round to $31 million, the report says.

Varentec raised $8 million from Bill Gates and Khosla Ventures. This was a new addition to Bill Gates’ collection of energy investments, Mercom notes. Bidgely raised $5 million, also from Khosla Ventures; and WaterSmart raised $4.5 million from Physic Ventures, Draper Fisher Jurvetson, Apsara Capital and The Westly Group.

Like the previous quarter, the report says home and building automation companies received the most funding with $36 million in seven deals followed by grid optimization companies with $20 million in one deal.

There were four mergers and acquisitions (M&A) transactions in Q3; however, the report says only one transaction, Schneider Electric’s acquisition of Invensys for $5.2 billion, was disclosed. This is Schneider Electric’s sixth smart grid acquisition.

The third quarter also saw a successful exit in the IPO of Control4, a provider of automation and control solutions for the connected home, which raised $64 million.

For more information about Mercom’s report, click HERE.



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