Two partners are leaving storied cleantech investment firm Khosla Ventures, as excitement has started to peter out in the once-buzzing clean technology space.

Khosla Ventures partners Jim Kim and Alex Kinnier have followed former partner Gideon Yu in leaving the cleantech investing firm. The turnover has clouded the future of clean technology investment firms, which are exposed to higher risk and lower returns now that the initial excitement has died down.

“Not unlike most sectors, there’s a period of exuberance that tends to kick off a particular sector and then it settles down into the hard work necessary to build real value,” Mohr Davidow Ventures general partner Josh Green told VentureBeat. “We’re into that real value building element of clean technology, so a little bit of the excitement has slowed down.”

Cleantech investing is particularly sensitive to investor sentiment because the sector typically requires massive upfront capital costs and, as a result, is a little more risky. A recent broad market sell-off that scattered public investors hasn’t helped much either, leaving less liquidity on the table for venture capital firms looking to cash in on high-priced initial public offerings.

That’s made investors turn to safer investments like treasuries and bonds as well as less capital-intensive startups, like business social network LinkedIn and those in the Web 2.0 space. The sell-off has also raised questions about whether the window for companies looking to file for an initial public offering has closed.

The Khosla Way

When Vinod Khosla (pictured above) left Kleiner Perkins Caufield & Byers in 2004 to invest in clean technology startups, he swung for the fences. Khosla was known for taking a “portfolio” approach to cleantech investing by dropping money in just about every potential part of the budding sector, from biofuels to smart grid companies. The company has invested in some information tech companies like group texting service GroupMe, but it has traditionally been known as a clean technology investment firm.

But the excitement during clean technology’s honeymoon period has started to die down. That’s left venture capital firms that are heavily exposed to clean technology investments at a disadvantage compared to the likes of Andreessen-Horowitz and Accel Partners, which are investing in the newest and sexiest startups in Silicon Valley.

VantagePoint Venture Partners was able to ride the existing excitement by investing in companies like electric car maker Tesla Motors, which successfully went public, and solar power provider Brightsource Energy, which has filed for an initial public offering. It also invested in biofuels maker Solazyme, which also went public. But right now, it seems Fisker Automotive and Bloom Energy are the “aha” moments in clean technology right now, Kleiner Perkins Caufield & Byers partner Ray Lane told VentureBeat.

Yu, an investor in transaction provider Square, left Khosla Ventures in earlier this year to become the chief strategy officer of the San Francisco 49ers — an established sports franchise with five Superbowl victories. Kinnier planned to start his own company after joining Khosla Ventures from search giant Google. Kim has not said what his plans are after leaving the firm.

Slower investing, lighter IPOs

Investments in clean technology companies slowed in the second quarter this year. The amount of money invested clean technology projects fell 10 percent to $1.83 billion when compared to $2.03 billion in the second quarter of 2010.

Algae-based biofuel maker Solazyme raised $227 million from its initial public offering in June, while biofuel maker KiOR raised $150 million in its initial public offering in May. (Both companies’ share prices were crushed in the market sell-off on Monday, with each company losing more than 16 percent of its share’s value by the end of trading.) Smart grid developer Silver Spring Networks only plans to raise $150 million in its upcoming initial public offering.

That’s compared to business social network LinkedIn, which raised more than $350 million without flinching. That company also picked up a market cap of nearly $10 billion before the sell-off wiped out more than $3 billion in value. Two other Web 2.0 companies, Groupon and Zynga, already filed to go public. Groupon wants to raise up to $750 million, while Zynga wants to raise up to $1 billion.

Meanwhile, mergers and acquisitions activity in the tech space — particularly companies that use cloud computing technology, which uses powerful remote servers to execute computationally-intensive tasks — is exploding. The amount of money spent on mergers and acquisitions in those spaces nearly doubled to $52 billion in the second quarter this year, up from $30 billion in the same quarter a year earlier.

The lack of excitement could lead to a cash crunch for clean technology companies that need to raise large later rounds of funding to continue working through their larger capital costs. It’s a vicious cycle that threatens to dismantle the cleantech investing ethos if it were left to run rampant.

“There would be very greatly reduced interest on the part of venture capital firms to fund anything,” Claremont Creek Ventures partner Nat Goldhaber told VentureBeat. “That means that follow-on capital could be more difficult than it has been historically to pick up.”

There’s also concern over whether government grants that have helped clean technology companies with their large capital costs will persist, which could also take the wind out of the sails for cleantech companies.

“Many of those investments were made possible by TARP and other extra ordinary grants,” Goldhaber said. “Brightsource, Tesla and many others were recipients of very large investments by the Fed, who knows what’s going to happen with that.”

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