recyclingInvesting in clean tech is a lot like having your own compost pile. You know it’s good for the environment, and yet the process and direct payoff often don’t seem worth the effort.

The Westly Group, however, is doing something right. The venture capital firm has closed a $160 million fund to invest in up-and-coming clean/green tech startups.

Former California state controller and chief financial officer Steve Westly founded The Westly Group in 2008 to accelerate innovation in clean energy. While many investors have seen little returns on investments in this sector, and funding in this space declined significantly in 2012, the Westly Group has fared well. Investments in Tesla Motors, biofuel company Amyris, and China Recycling Energy Corp have all gone public, and Westly sees this area growing in the future.

“We are more bullish than ever on clean tech,” said Westly in an interview with the San Jose Mercury News. “Costs are going down, revenues are going up, and we’re seeing better business models. People have gotten smarter. And corporate investors are replacing pension funds and university endowments — they understand how large this market.”

Electric vehicles and biofuel aside, the Westly Group has invested in startups that have a more broad interpretation of clean tech. For example, portfolio company Revolution Foods provides healthy meals to charter schools and school districts and is currently active in 12 states and 500 schools.

While clean tech has struggled a bit in recent years, major venture capital firms and corporations are still interested in it. Khosla Ventures, Kleiner Perkins Caufield & Byers, Draper Fisher Jurveston, and companies like General Electric and Siemens are actively investing, and companies like Google are taking big steps to become more energy efficient.

Furthermore, during his recent state of the union address, President Barack Obama emphasized the need to drive new research and technology in this market to decrease reliance on foreign countries and fossil fuels, address climate change, and create jobs.

Clean tech has plenty of room for innovation and growth, and with this latest fund, The Westly Group stands to benefit when green tech becomes cool again.  The fund has 50 investors; the three largest are corporate investors Citi, the German utility E. ON, and the SK Group of Korea. The Westly Group previously raised a $127 milion in 2009 and paid back its limited partners, who invested $50 million of their own money.

Photo Credit: rocknroll_guitar/Flickr