Funding in the cleantech sector may be up this year, but performance isn't following. The latest research from Bank of America Merrill Lynch (BAC) puts the sector down 15% since the beginning of the year. Steven Milunovich, the bank's U.S. renewable energy analyst, indicates that the sector may be staring down unprofitable growth for the rest of 2010. On a conference call, he said, "We are going to have growth, I am not concerned with this over time. What I am concerned about is profitability."

Milunovich said, "Clean technology stocks performed very well in 2007 and 2008 when there was a lot of issuance in the wind space. But in 2009, our index was down 60 per cent versus the market,' he said, on a conference call." Bank of America estimates that the sector as a whole has annual revenues of $100 billion, with an aggregate market cap of $200 billion.

The tree-hugging sector has found its way back into the spotlight. A new report from the Cleantech Group, in conjunction with Deloitte & Touche, pegs venture capital in the cleantech sector up 29% from the fourth quarter of 2009 to the first quarter of this year -- and up 83% year over year. In fact, VC action in cleantech set a new record for the number of deals closed (the previous best, 165, was set in the prior quarter). A total of $1.9 billion was invested last quarter in 180 cleantech companies.

According to Sheeraz Haji, president of the Cleantech Group, "The first quarter's bounce back in terms of venture capital investment compared to 2009's early lows bodes well for what we think is in store for the remainder of the year." Haji continues, "North America was particularly dominant this quarter."

The clean technology sector was a lone glimmer of hope for the venture capital business through the financial crisis and ensuing recession. Quarterly updates gave positive news despite the destruction of capital elsewhere in the global financial markets. Now that the results are in for 2009, however, the outcome isn't as positive as many expected.

According to data from market research firm Cleantech Group and accounting and consulting firm Deloitte, venture capital funding fell 33% last year, but still held up better than the market as a whole.

For the first half of 2010, almost two thirds of money managers are bullish, according to Barron's. In fact, 54% are bullish, and 5% are "very bullish." Responses suggest that the Dow Jones Industrial Average is expected to gain another 5% by the end of the year.

According to Barron's, "Today's bullish investors see the major stock indexes making steady progress through next June, amid signs the U.S. economy is on the mend after a searing recession."

The clean technology wave just got a little bigger. This tends to be a side-effect of interest from billionaire investor George Soros. And, as usual, it's more than just money; it's more than just a return. Soros, yet again, is trying to save the world. Interestingly, the bold move was announced at a meeting on climate change sponsored by Project Syndicate – an international association consisting of 430 newspapers from 150 countries (and thus with clear ties to the past, rather than future).

The investor and founder of Soros Fund Management LLC is planning to put $1 billion into clean-tech opportunities using what he calls "rather stringent criteria," which involves being "profitable but should also actually make a contribution to solving the problem [i.e., of clean technology adoption and proliferation]." Soros didn't provide any other details on the nature or scope of his investments.

Venture capital investment in clean technology grew 10% from the second quarter to the third this year. According to a report by the Cleantech Group and Deloitte, 134 companies received investments of $1.59 billion – up from $1.2 billion in the second quarter. The sector's upward trajectory continues, with last quarter marking the second in a row of double-digit growth. In the first quarter of 2009, venture capital investment in cleantech companies hit a low of $1 billion.

The strong third quarter has made the cleantech sector the largest in the venture capital business, according to the Cleantech Group, pulling ahead of biotech. Twenty-seven percent of venture capital funds invested in the second quarter of 2009 went to cleantech companies – up from 3% at the beginning of 2004.

Venture capital funds found 612 companies in which to invest $3.67 billion in Q2. Of this, $1.5 billion (41%) was first-time financing, according to a report by PricewaterhouseCoopers and the National Venture Capital Association. This is only slightly ahead of the action in Q1, in which 141 transactions were first-time, and far behind the pace we enjoyed earlier this decade.

The biotech sector was the big winner in a shrinking market, with funding up 54% to $888 million over 85 deals. The software business was flat quarter-over-quarter at 4644 million over 135 transactions. Investments in internet companies fell 15% to $524 million via 124 deals. Clean technology showed considerable growth, up 15% to $274 million, with 42 transactions closed.

The venture capital (VC) industry demonstrated its commitment to the clean technology space in the second quarter of 2009, pumping $1.2 billion into the sector, according to a report by GTM Research. VC investments in cleantech are up 43.5% from the first quarter of the year, when $836 was put into play in the cleantech space.

The number of transactions increased, as well. In the first quarter, 59 deals were completed, and deal-flow surged 44% to 85 in the quarter just finished. Average deal size remained fairly consistent: $14.2 million for the first quarter and $14.1 for the second.

According to the number-crunching from PricewaterhouseCoopers and the National Venture Capital Association, there was an 8% increase in venture funding for 2007 (it's the fourth consecutive increase). That translates into a juicy $29.4 billion.

OK, so where's the action? Of course, there was strength in Web deals as well as biotech (yes, these sectors always seem to need capital).

But, in light of the surge in oil prices, there was a big jump in funding in energy deals and clean technology. That is, the deal volume went from 124 to 187 financings. In all, there was about $2.5 billion invested in the sector. Interestingly enough, one company -- Project Better Place – pulled in a cool $200 million first round.

Oh, and as should be no surprise, it was California with the most deal action. Last year, the region saw $14 billion in financings.

However, with the wrenching volatility in the equities markets, there could be trouble ahead. In such times, it can be challenging for M&A transactions and IPOs, which drive the enthusiasm for venture capital deals.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

The last three decades have oscillated between private equity and venture capital. Right now, VCs are down and private equity is up. But 'clean tech' -- technologies that save energy and otherwise allow for a cleaner, greener world -- could revive VCs in the next decade while private equity licks its wounds.

In the 1980s, private equity was king. LBO firms were able to borrow huge amounts from banks and the junk bond market to finance hostile takeovers. The LBO boom ended badly with the collapse of junk bond king Drexel Burnham and overreaching in the form of the bidding war for the largest LBO in history --- RJR Nabisco.

In the 1990s, private equity imploded and watched with envy as venture capital prospered. It wasn't until the middle of the decade that VC firms like Kleiner Perkins were able to prosper from their investments in the Internet – beginning with the 1995 IPO of Netscape. The dot-com boom ended badly in 2000 with NASDAQ plunging -- it's down 54% from its March 2000 peak of 5,038 to its current 2,327.