What do venture capitalists like in 2010?  Not cleantech.  But they are optimistic about more big IPOs and mergers and acquisitions coming through.

An article in the New York Times discusses the technology sectors that VCs are bullish on.  VCs are excited about startups developing applications for the Android, less so for iPhone application companies. VCs see a need for entrepreneurs who will help us organize the mountain of data from Twitter, Facebook, email, and the multitude of social media tools. VCs also like cybersecurity companies that will help protect data from being hacked, and hardware and software startups that will help businesses make further moves toward cloud computing and virtualization.

Interestingly, the cleantech bubble — if there ever was one — may be bursting.  Investors are perhaps scaling back the flow of capital to cleantech, energy efficiency, and smart grid startups.  They are less excited about the potential for huge returns.

The National Venture Capital reports that investment in cleantech was $1.6 billion in the first nine months of 2009 compared to $3.1 billion in 2008.  By contrast, GTM Research puts cleantech investment in 2009 closer to $5 billion, though that is down from $7.5 billion in 2008. Biofuels and solar attracted the most investment, followed by smart grid, energy storage, water, and wind. Regardless of the actual numbers, investment in cleantech trended downward in 2009.

IPOs And M&A Looking Better

Most importantly, investors see the IPO market and merger and acquisition activity improving in 2010.  First, there are a number of venture backed ready to go public, including Facebook.  One huge IPO could open up the capital markets for other companies.  Second, investors believe that the M&A environment can only get stronger compared to 2008. Some investors believe that IPOs will stimulate M&A activity. However, that is not certain.

VCs and entrepreneurs need the capital markets to return as a viable exit. Otherwise, there will be fewer VCs to prognosticate about 2011′s hot technologies.

Douglas Y. Park
Twitter: @DougYPark