Bangalore: Earning greenbacks from green firms is a popular pursuit in venture capital hot spots such as Silicon Valley.

Indian entrepreneurs who dream of using smart technologies to clean up a polluted planet—or at least ensure that it does not get further despoiled—are in for a tougher ride. Venture capitalists putting money into local start-ups are less enthused with green dreams.

Greenbacks: (L) Ojas Venture Partners’ MD Rajesh Srivathsa. Harish Gandhi, executive director of Canaan Partners. Hemant Mishra / Mint

The first three months of 2009 saw three deals in the clean-technology space in India. All involved private equity, or PE, firms rather than venture capital, or VC, firms. Jain Irrigation Systems Ltd, a provider of micro-irrigation systems, raised $45 million (Rs226.8 crore) from International Finance Corp. Sri Biotech, an agri-biotech company, raised Rs45 crore from Rabo Equity Advisors Pvt. Ltd. Polygenta raised an undisclosed amount from Aloe Private Equity.

VC firms are only willing to make small bets in an area that requires more serious amounts of money. And many of the young firms that are jostling into this space are not armed with game-changing technological innovations that will flower into a Google or Amazon of green business, say investors.

“We have firms making solar panels approaching us. What’s new in this? With the kind of money they need, they are more suitable for PE players," said Rajesh Srivathsa, managing partner, Ojas Venture Partners. Even if a VC firm invests $2-3 million in a green start-up in the first round of funding, in 18 months it would need another $8-10 million to scale up.

Besides, the global downturn has hammered overall deal flow in India: local companies raised $277 million in 14 disclosed rounds, down 20% from 2007, according to Cleantech Group Llc, which provides global market research and other services for the clean-technology ecosystem.

The threat posed by climate change and fears about shortages of water, fuel and energy have resulted in a growing interest in investment opportunities in clean-technology companies all over the world. In developed economies, clean-tech investments are mostly in solar energy, biofuels, advanced batteries and electric vehicles. In India, investments are mostly in agriculture-based businesses, irrigation, equipment making and power projects. “We believe there should be opportunities in the area of energy efficiency in devices/machines, energy storage, energy production and distribution," said Harish Gandhi, executive director, at VC firm Canaan Partners.

VC firms complain that most Indian firms merely apply technologies developed elsewhere. “In green and clean-tech investments, most of the IP (intellectual property) work is being done outside India. For example, in biofuels, there is no such innovation here. I feel its more of an application and execution play in India than an IP or innovation play," said Bejul Somaia, managing director, Lightspeed Advisory Services India Pvt. Ltd.

Entrepreneurs complain that most VCs are reluctant to fund firms in this space. Rajesh Nair, managing director of Lords Automotives, an Ahmedabad-based fuel-saving kit maker, says he has maintained a personal directory of venture capitalists who have turned him down. “When it comes to investing in energy conserving kit makers like us, they question whether it is worth risking their millions of dollars," he said.