What some big money is doing!

Kleiner's Green Investment Machine

Dec 14, 2006
Wall Street Journal, Print Edition
JIM CARLTON

Why the Fledgling Clean-Tech Industry Is Gaining
Interest Among Venture-Capital Firms


Kleiner Perkins Caufield & Byers rose to fame by backing high-tech success stories like Google, Amazon and Netscape. Now, the Silicon Valley venture-capital giant is hoping to cash in on another trend: The demand for renewable energy and other clean-tech ventures.
After dabbling in green investments beginning five years ago, Kleiner in April set aside $100 million for clean-tech start-ups, and has increased that amount since with total backing of 14 clean tech ventures.
Kleiner isn't alone. Clean-tech investments world-wide soared 51% in the first three quarters this year to $761.4 million from $504.1 million at the same period last year, according to an analysis by Dow Jones VentureOne and Ernst & Young.
But Kleiner has taken a particularly prominent role in the fledgling industry. Last week, it hosted the second Greentech Innovation Network conference in Berkeley, Calif., where former Vice President Al Gore -- who has crusaded against global warming -- addressed Silicon Valley executives about environmental issues.
In an interview afterward, two Kleiner partners -- former Intel Corp. salesman John Doerr and Ray Lane, former president and chief operating officer of Oracle Corp. -- said clean tech represents fully half the firm's investments excluding special funds, and its participation will only continue to grow. Some excerpts:
WSJ: Why is there so much interest in clean tech now?
Mr. Lane: We have always said that we do well by focusing on sectors, not companies. So when we saw changes happening in the semiconductor and microprocessor industry, and when we saw changes happening around the Internet, [we knew] these were major sectoral changes that occurred that would essentially displace the economics that were in place at the time.
The Internet is an example. Billions were made, billions were lost. You take that cataclysmic change that occurred over the last 10 years and you say, 'This looks like it could occur in energy.' Now we are dealing not with a sector of billions, but we're dealing with a sector of trillions. The venture business does well if it gets involved early because we're willing to take the risk.
It's a natural thing for Silicon Valley. We like very large markets. It doesn't make sense to go into small markets. It is huge sectoral change in one of the biggest industries on Earth, if not the biggest, and then it's being driven by technology, hot technology change.
WSJ: Does this look to be bigger than the Internet or as big?
Mr. Lane: This is bigger than the Internet, I think by an order of magnitude. Maybe two. I'm taking the entire energy industry. You can boil it down to two simple contributors.
One is transportation fuels. Transportation fuels represent a fairly low amount of use of oil...but a huge amount of the emission problems. And the other is electricity generation.
In one market -- which is basically oil refined for use in transportation and then the emission problems that occur -- we also have a national security issue in that we do not control the price of oil. In coal, we're the Saudi Arabia of coal. We have lots of it, but if we could find a way to use coal -- gasify it, sequester the CO2 from it -- that is a huge answer.
The risk capital is here to basically put large amounts of money [into renewable-energy start-ups]. What's different for us is this is a lot of money. Normally you start a software company on $20 million. [But] starting up a lot of these companies is hundreds of millions of dollars to get them to scale.
WSJ: As of last spring, Kleiner said it planned to set aside $100 million for clean-tech investments. Where does that stand now?
Mr. Lane: We've doubled it. The way we think of it half of our resources [mainstream investments, not including special funds] are going to green tech right now. You have some [Kleiner] partners that are spending part time [on clean tech], others are spending full time on it.
Mr. Doerr: For example, Bill Joy [who co-founded Sun Microsystems Inc., and recently joined Kleiner as a partner].... When he joined us, everybody thought he would be doing new architectures in chips and software. He's not. He's working on green sustainable innovations.
We have been at this as a partnership for over five years now in investing in innovations in clean water, clean power and clean transportation... This is very, very important to Kleiner.
WSJ: What is the single most attractive area to you for VC investment? Would it be solar, biofuels or what?
Mr. Lane: It's hard to pick one. I'll tell you what we've done and that will give you an indication. We have done three solar investments. We've done three or four biofuels investments. We've done one in biomass gasification, which is coal gasification to make natural gas. We have done three storage, which is batteries, essentially. We haven't done anything in wind, and we want to. And we haven't done anything in geothermal. We want to.
WSJ: You guys have had a lot of successes, but also failures. Is it possible the [clean tech] craze could implode at some point and people lose a lot of money?
Mr. Lane: We are going to see tremendous demands [for more energy] placed by growing, emerging economies like China and India and others as well as continued growth in the United States. So the energy demand will not go away. So we think this is permanent. But I call it risk capital, and it has risks. We've got to be smarter than the next guy down the street on what money we put into.
Mr. Doerr: A fair question is, why now, what's changed and then why Silicon Valley? Bill Joy helped in my reasoning about this when he identified the three structural changes that make it [clean tech] different now compared to four or five years ago.
First, is price at the pump. The second is advances in the small, in the nanosciences. I think it's fair to say every one of the green innovations we have made investments in involves some change at the material, physical level in the product or service that wouldn't have been possible or economic five years ago.
And the third point -- and this is often missed -- is what has happened because of Moore's Law [the axiom by Intel Corp. cofounder Gordon Moore that microchips double in capacity every two years. Clean tech scientists] don't have to discover a new process. They can in fact design them. They have supercomputers on their desktops or next to their desks.
WSJ: Where do you see your level of clean tech investing five years from now?
Mr. Doerr: I think it will stay at this level, but I am notoriously bad for forecasts, on the upside or downside.

Write to Jim Carlton at jim.carlton@wsj.com