Even though U.S. financial markets have cooled in 2008, investments in “clean technology” from firms such as Silicon Valley–based Khosla Ventures have remained hot. Clean technology—products and services that harness renewable resources and limit environmental impacts—has emerged as one of the top three asset classes for venture capitalists. “The past five years have seen significant increases in interest and investment in this area,” says Ron Pernick, co-author of The Clean Tech Revolution. Venture capital totaled $2 billion in the second quarter of 2008—a new record—and was up 48 percent from the first quarter despite the economic downturn.

The market’s large size and its potential for addressing important global challenges will continue to drive investments, according to Samir Kaul, a founding partner at Khosla Ventures, one of the top five clean-tech investors. Utility-scale solar power plants and second-generation biofuels such as algae have led the field in recent financing rounds, but funding is now branching into less developed technologies such as bioplastics, green building materials and water desalination.

Note: This story was originally published with the title, "Green Funds Remain Hot".