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Kleiner Perkins and Energy Investing


Someone recommended I read the NY Times Magazine article from a few weeks ago called "Capitalism to the Rescue" about how venture capital money is fueling the so-called green-tech economy.  The article almost entirely focuses on Kleiner Perkins.  The article includes quotes from John Doerr and Aileen Kim (one of the Green VC Stars) among others. 

The article talks at length about how KPCB finally made its foray into green-tech in the last few years and why they did so.  Surprisingly it was Bill Joy that led the way with a "map of grand challenges" in the energy space:
Then, in late 2006, at one of Kleiner’s corporate retreats, Bill Joy, a founder of Sun Microsystems and a new partner at the firm, displayed what later became known within Kleiner as “the map of grand challenges.” This was a matrix of colored squares that itemized the firm’s progress in locating potential investments in about 40 different categories: water, transportation, energy efficiency, electricity generation, energy storage and the like. In the blank spots there were lists of “things that ought to be possible,” in Doerr’s words — ideas, in short, that might produce huge changes and, if Kleiner bought a stake, huge profits. Thus the grand map was a rough, imaginary outline of a clean-energy economy that didn’t really exist and perhaps wouldn’t in any meaningful way for decades. But it helped Kleiner understand what to look for. That same year, Kleiner officially informed its investors that it would begin putting $100 million of its newest fund in green technology. Doerr, Joy, Ray Lane and John Denniston all joined the green-tech group.
Interesting to hear about how the fund got started.  The money is going into the usual things you would expect - electric cars, fuel cells, wind turbines, biofuels, solar, and the like.  The interesting thing about this industry, though, is that investment amounts are much higher and exits are much further out than in previous technology cycles.  Turning around a $10 - $15 million Internet investment is a lot easier than turning a $250 - $500 million investment that takes 5 times as long to develop.  The risks, one would assume, would be even higher.

The article mentions the typical four risks that start-ups face in overcoming "the valley of death" (the stage between project origin and commercial deployment):
  1. Technology - can it be built?  how hard is it to build it?  can others build it just as easily?
  2. People - how good is the team?  can they execute?
  3. Market/sales - will anyone buy it?
  4. Financial - as I mentioned, these companies take a lot of money and a lot of time to reach the market
But VC's are undaunted by these risks these days.  Why?  Because energy is such a big target.  I thought this quote was pretty funny:
On a different morning, another Kleiner partner, Randy Komisar, told me that the firm’s green-tech investments didn’t seem terribly risky to him because the energy market was so large and outdated. “I’m so dead certain that we’re solving the next huge problem for the planet,” he said. “I’m not very good at hitting the bull’s-eye. I need a big target. And this is the biggest target I’ve ever seen in my life.”

And as for a bubble in green-tech, Doerr responded:
Doerr expects several Kleiner green-tech ventures to have I.P.O.’s within the next few years. But he dismissed the possibility that his enthusiasm for the energy sector might already be overheated. “I believe what we’re investing now,” he told me, “is a pittance in comparison to the size of the opportunity and the size of the problem.”
Well, now I'm absolutely convinced there will be a bubble.

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