A small pittance of venture financing in clean technology is making its way to the Midwest, despite record breaking investment in the industry nationwide.

But momentum is building to attract venture deals to this fast growing sector.

“Ground zero for biofuel work is in states beginning with ‘I’,[including Illinois]”  said Seth Snyder, a biochemical engineer and section leader for Argonne National Laboratory's Chemical and Biological Technology Section.

“We have first-class science and universities,” he said. “But what we don’t have… is the risk side of capital.”

Clean technology investments by U.S. venture capital firms hit record-breaking levels this year, the National Venture Capital Association announced last week.  In the first three quarters of 2007, investments by U.S. firms reached $2.6 billion, already outstripping last year’s total of $1.8 billion.

But of the states that received venture financing for clean technology in 2007, including renewable fuels, only one began with the letter ‘I’ – Iowa – and it received the least.

In terms of venture financing, Snyder said, “the Midwest is ignored.”

Within the country, the majority of U.S. clean technology investment dollars and deals went to California, where 68 deals accounted for $762.2 million dollars.

By contrast, Iowa, the sole Midwest recipient of clean tech venture financing, logged only three deals for a total of $28 million.

“We have a lot of pieces of the puzzle,” said Jim Greenberger, a Chicago partner with the law firm of Reed Smith LLP, who focuses on alternative energy and clean tech private equity transactions. “We have the foremost science, one could argue, incredible history… a wealth of research institutions and land grant institutions.”

But, he said, “We have no major success stories. If we did, you would see the same phenomena as you do in California.”

To ripen the conditions for that Midwest success, Greenberger worked with local researchers, entrepreneurs, venture capitalists and others to host the Midwest Alternative Energy Venture Forum, held on Thursday.

“The goal of the conference,” Greenberger said, “is to produce that one winner…to get people willing to stick their toe in this sector to make a very public investment.”

The information technology sector paved the way for venture financing in California in the 1980s and 1990s, Greenberger said. He hopes alternative energy will do the same for the Midwest.

A couple of years in the making, the forum took place last week at the University of Chicago and attracted more than 200 scientists, investors, students, investment bankers and others interested in growing the clean technology sector.

An opportunity for researchers and entrepreneurs to share their progress in the renewable energy field, the forum also showed investors the innovative technologies being developed in this part of the country.

A panel of scientists, including Snyder, discussed breakthrough advances coming down the pike, including renewable diesel, bio-based chemicals and fuel cell technology. 

And 14 Midwestern companies from a broad cross-section of technologies made presentations to the attendees.  The biosciences field was well-represented, but companies harnessing solar power, battery technology and flexible lighting technology also participated.

Greenberger said he had been nervous that the startups presenting would not stand up to the startups on the coasts. But, he said the response from local and coastal venture capital firms was overwhelmingly positive.

"The show was very strong, both with respect to the quality of attendees and the
presenting companies," said John Banta, managing director of Illinois Ventures, LLC, a Chicago-based venture capital fund.  "The presenting companies… were as strong as I've seen anywhere."

“More of the Chicago investment dollars are chasing larger deals that are less risky and favor the traditional Midwest industries,” said Linda Darragh, who teaches entrepreneurship at the University of Chicago Graduate School of Business, in an e-mail.

“However, there is an increasing amount of early-stage money in the form of angel investments as well as venture capital,” Darragh continued.  “The clean tech industry is growing and developing in the Midwest and we will see increasing amounts of Midwest capital going into clean tech.”