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Silicon Valley venture capitalists nurturing growth of green technology

Start-ups often need big money and investors steeped in big science and big government.

September 20, 2009|Todd Woody

MENLO PARK, CALIF. — In what would have been an unaccustomed move for a Silicon Valley venture capitalist not too long ago, Alan Salzman recently flew to Copenhagen to attend a conference on climate change and schmooze government policymakers.

His mission: Explain the role of venture capitalists and their green-tech start-ups in cleaning up the environment.

"All aspects of clean tech bump up against government regulations," said Salzman, whose firm, VantagePoint Venture Partners, has funded such high-profile firms as electric car maker Tesla Motors Inc. and solar power plant developer BrightSource Energy Inc.

A few years ago, venture capitalists rarely ventured too far from Sand Hill Road, a stretch of low-slung office parks nestled among redwood trees in the hills above Stanford University that is home to some of the world's biggest venture firms. As a rule, Silicon Valley venture capitalists kept their distance from regulators and policymakers. Not anymore. Climate change legislation and state regulations are influencing the fate of their green-tech portfolios and helping determine whether a start-up turns out to be the next Google Inc. or the next Webvan, the online grocer that spectacularly flamed out in the dot-com crash of 2001.

"If you're doing tech investing you don't care too much what's going on in Washington with regulatory policy, but it absolutely matters with clean tech -- it's a big driver," said Marianne Wu, a partner at the Sand Hill Road firm Mohr Davidow Ventures. "I don't think anyone from our IT group has been to D.C. in the last year. But our clean-tech group certainly is going to D.C. often."

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Reinventing the past

Silicon Valley venture capitalists have always been about inventing the future -- taking a wild idea, nurturing it with cash and creativity and giving birth to new products, companies and industries we once couldn't imagine and now can't conceive of living without: the Web, Google, the iPhone, Twitter.

But as green technology becomes the latest tech wave to break from the nation's entrepreneurial epicenter, it's now all about companies reinventing the past. Solar power companies, electric car start-ups and algae biofuel ventures aim to remake century-old trillion-dollar industries on a global scale.

Venture capitalists poured $4 billion into green-tech start-ups in 2008 -- nearly 40% of all tech investments in the U.S., according to a survey by PricewaterhouseCoopers. Green-tech investment plunged in the first half of 2009 to $513 million as the recession dragged on, but there are signs of a rebound: Silicon Valley's Khosla Ventures announced this month that it had raised $1.1 billion -- the biggest first-time fund in a decade -- that would be largely devoted to investing in green-tech start-ups, many in Southern California.

But green-tech companies face unique challenges, including global markets, tough technological hurdles and a future shaped by government incentives and regulatory policy. Those challenges are changing the game on Sand Hill Road.

"If you're starting a Web 2.0 company, your basic needs are personnel and servers -- there is no physical product, no manufacturing capacity, no inventory, no steel in the ground," VantagePoint's Salzman said, referring to software-based companies that provide services over the Internet.

Green-tech start-ups, he said, often need big money and investors steeped in big science and big government.

Solyndra Inc., a Silicon Valley start-up that makes rooftop solar arrays for commercial buildings, burst onto the market last October with a staggering $600 million in venture funding and $1.2 billion in product orders. If that wasn't enough, it has since raised nearly $200 million more and secured a $535-million loan guarantee from the U.S. Department of Energy to build a factory in Fremont, Calif.

California's requirement that utilities obtain a growing percentage of their electricity from renewable sources has created new markets for Mohr Davidow Ventures' start-ups. One company, Energy Innovations Inc. of Pasadena, is developing photovoltaic power equipment for commercial use. Another, Nanosolar Inc. of San Jose, has raised half a billion dollars and sells low-cost, thin-film photovoltaic panels for solar farms.

Recently, Tesla Motors scored a crucial $465-million, low-interest loan from the federal government to build the Model S, a battery-powered sports sedan, while BrightSource Energy has applied for a loan guarantee to help finance its first solar power plant.

"We have to be competitive on the global level, and to me it's very hard to understand how we can think globally without having some sort of partnership with the U.S. government," said Tom Baruch, a longtime Silicon Valley venture capitalist whose firm, CMEA Capital, was an early investor in Solyndra.

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Green investor

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