VentureBeat

They may not receive as much attention as flashy Silicon Valley types, but Midwestern VCs would like you to know that, yes, they too are serious about investing in cleantech. The latest to join the fray are Rick Kieser and Scott Prince, whose Cincinnati, Ohio-based Clean Wave Ventures is in the midst of raising $100 million for its first cleantech fund.

The fund will focus on four main areas of investment: water, energy, transportation and materials. Kieser and Prince are close to making deals with several companies — a wind turbine maker, an electric motor manufacturer and a geothermal energy company — they’ve already been in talks with. The investments will range from $2 to $7 million each, and Clean Wave is currently targeting 15 firms for its initial fund — which it expects to wrap up in the coming year.

With the majority of cleantech dollars and deals still going to California — a report found the state’s 68 deals in 2007 accounted for a hefty $762.2 million — Midwestern states like Iowa, whose 3 deals in 2007 amounted to $28 million, and Illinois have been trying to make themselves look more appealing to investors by investing in local entrepreneurs and research. These states have gained a reputation for recent advances made in biosciences, biofuels and renewable energy technologies.

Business-academic partnerships, like the one that created Xunlight, have been a boon for the states, and Midwestern universities’ pioneering research on cellulosic ethanol and other alternative fuels could lead to more breakthroughs over the coming years. Because of the amount of land available and its terrain, many believe the Midwest could become a central hub for wind power: According to the American Wind Energy Association (AWEA), the region has the capacity to produce 635,790 megawatts. Midwest Renewable Energy Corporation, a subsidiary of Iberdrola, is building several wind farms in Iowa and Wisconsin.

Despite a slow start, investors in the region are bullish about the Midwest’s potential as the next big cleantech hive. They’re hoping 2008, which has already seen record amounts of money sloshing around, could be a banner year.

Spanish utility and renewable heavyweight Iberdrola has revealed that it will invest a hefty $8 billion in the American cleantech sector over the next 3 years. Though it plans on focusing most of its investment activities in the U.S.’s burgeoning wind sector, it also hopes to gain a foothold in the country’s other clean energy markets.

Iberdrola chairman Ignacio Sanchez Galan said he considers the U.S., with its growing interest in renewable energy and ideally flat terrain, the most promising market for wind power; he hopes to claim a 15% market share by 2010. The privately-held firm, the world’s biggest wind developer, owns farms in New York, California and Oregon with an aggregate installed capacity of 2,400 megawatts. It already has several projects underway in the Plains and Great Lakes states and expects to reach an installed capacity of 3,600 MW by year’s end.

This massive push is the latest in a series of high-profile investments — mostly led by major venture capital firms like Kleiner Perkins and Israel Cleantech Ventures. According to a recent PricewaterhouseCoopers report, VC firms invested over $2.2 billion in the cleantech sector last year.

Iberdrola’s ambitious move will likely ratchet up the competition in the wind market, which has seen a string of big deals in recent months, and could help spur domestic investment in startups like TechnoSpin, Marquiss Wind Power and Noble Environmental Power.