The sector is seeking a VC revival after the solar power flop in the 2000s.

After years as a venture capital pariah, cleantech startups are rebranding themselves to capitalize on the quest to build a smart city.

Cleantech companies, whose missions are broadly linked to environmental improvement, are benefiting as municipalities around the world embrace smart cities—where internet-connected devices collect data that can be used to address challenges from energy efficiency to traffic, crime and public health.

The smart city market, expected to balloon to $1.57 trillion by 2020, according to a 2014 report from research and consulting firm Frost & Sullivan, is a way for cleantech startups to revive venture interest after the sector’s reputation suffered from failed experiments in areas like solar panels and biofuels in the 2000s.

"We’re not packaging this as cleantech; we’re saying these are smart cities," Jenny Fielding, managing director at the incubator Techstars, said of pitching her new class of startups to VCs. "That’s a very popular term right now, and people are throwing a lot of money toward that proposition. I’ve seen that what’s old becomes new again, and it just has a different name and a different business model."

Cities are an ideal spot for cleantech startups to show their value, Fielding said, because of the enormity of the data that could be gathered on metrics like energy use, air quality or infrastructure maintenance. The opportunity hasn’t gone unnoticed. U.S. venture investment in cleantech companies more than doubled in the third quarter from the previous one to $741.1 million invested across 65 deals, the most money since 2014, according to data provided by PitchBook. The startup researcher defines cleantech as technology companies that seek to reduce the environmental impact of human activities or to significantly reduce the amount of natural resources consumed through such activities.

Some of the top investments in the sector since last year include Atlanta-based Rubicon Global Holdings, which created a marketplace to reduce waste and recycling costs for businesses, and Trilliant Holdings Inc., a platform that centralizes information for utilities and energy providers.

"Cleantech, in a way, was the 1.0 version, and now if you wrap connectivity, internet and artificial intelligence and all those things that can make cleantech smart, I think there’s a value proposition that investors and the market can get their head around," Fielding said.

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"Cleantech is an important area," Khosla said. "I'd rather try and fail than fail to try something that's really important. So we made some mistakes—I'll tell you, plenty of mistakes. My life is full of way more mistakes than successes, but I don't look at my failures. I look at the successes that you give a chance to happen."

As cleantech continues to weave software and analytics into its approach, it’s taking on a different sheen. "A lot of companies that do things that benefit the environment who would’ve considered themselves or called themselves 'cleantech' when it was a good thing, will call themselves 'smart cities’ these days. And we’re one of them," said Marshall Cox, Radiator’s founder and CEO.

As the role of city governments, corporations, startups and investors blur when it comes to smart city investments, VCs are learning to get along. Shaun Abrahamson, co-founder of the city-focused venture firm Urban.Us, views cooperation with established companies—and especially governments—as a necessity for VCs as more startups tackle the physical, urban environment.

"I won’t say that VCs are in love with regulators—that’s probably a stretch—but I think a lot of them are seeing that trying to ignore or circumvent regulators is a very poor strategy," Abrahamson said. The smart city industry also attracts a breed of entrepreneur who seeks to build both economic and social value, he said. "There’s definitely some mission shift for founders, so venture and VCs, to some extent, are following."