Smart grid venture-capital (VC) funding remained weak in the second quarter of this year (Q2'12), totaling only $66 million in nine deals, according to a new report from Mercom Capital Group LLC.
The research firm blames changing business models and customer concerns over smart grid technology.
"Funding levels continue to be extremely weak in the smart grid sector, a reflection of shifting business models as the industry continues to struggle to understand customer needs and address customer misconceptions, along with security concerns and other issues," says Raj Prabhu, managing partner at Mercom Capital Group.
Funding levels have remained flat over the last three quarters: $66 million in 10 deals for the fourth quarter of 2011 and $62 million in 10 deals for the first quarter of this year (Q1'12). The average deal size in Q2'12 was $7.3 million, compared to $6.2 million in Q1'12.
The top five deals for Q2'12 accounted for 89% of the total $66 million that was raised. These deals include $15 million raised by Power Plus Communications from Siemens, Climate Change Capital Private Equity and British Gas; Tendril's $11 million deal with Vantage Point Ventures, Good Energies, RRE Ventures, GE and Siemens; $10 million raised by On-Ramp Wireless (investors undisclosed); $8 million raised by Gridco from North Bridge and General Catalyst Partners; $8 million raised by Navetas from Sensus; and $6 million raised by TaKaDu from ABB, Emerald Technology Ventures, Gemini Israel Funds and Giza Venture Capital.
Deals in the U.S. accounted for half of the total VC funding raised - with $32.4 million in five deals - followed by Germany, the U.K. and Israel.
Twenty-two different investors participated in nine VC deals in Q2'12, but only Siemens was involved in multiple deals (two). There were eight investors in Q1'12.
Mergers and acquisitions (M&A) activity in Q2'12 totaled $14 billion in seven transactions. Top M&A transactions were the $11.8 billion acquisition of grid and electrical equipment company Cooper Industries by Eaton, the $2.3 billion acquisition of smart meter company Elster by U.K. investment company Melrose, and the $72 million acquisition of ZigBee systems developer Ember by Silicon Labs.
Top acquirers with multiple deals this year include Eaton (which acquired Cooper Industries and Gycom), Siemens (Senergy Sistemas de Medicao and RuggedCom) and Itron (SmartSynch and C&N Engineering).
Top acquirers with multiple deals in 2011 included Schneider Electric (Telvent, Summit Energy and Viridity), ABB (Power Corp., Epyon and Obvient Strategies), GE (FMC-Tech, Remote Energy Monitoring and SmartSignal Corp.), Alstom (Utility Integration Solutions and Psymetrix), Ameresco (Applied Energy Group) and EnerNOC (Energy Response and M2M Communications).
Smart grid communication technology companies received the most funding as a technology group, followed by grid optimization, advance meter infrastructure and demand response companies.
