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Summary:

With the news that famed analyst Mary Meeker will be joining venture firm Kleiner Perkins Caulfield & Byers as a partner in its digital practice, a big question remains: Will Kleiner be moving farther away from its foray into greentech and closer to its digital roots?

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With the news that famed analyst Mary Meeker will be joining venture firm Kleiner Perkins Caulfield & Byers as a partner in its digital practice, a big question remains: Will Kleiner be moving farther away from its foray into greentech and closer to its digital roots? Fortune ponders that and seems to conclude that yes Kleiner is “refocusing.”

If so, it’s been a long time in coming. Kleiner’s John Doerr has expressed concern over the firm’s greentech investments before. About a year ago, Doerr said during a speech that if Kleiner had seen how bad the market was going to crash, it probably wouldn’t have started it’s green initiative: (see Doerr videos from EETimes and the live stream of the event today on FORA.tv):

“If we’d been able to foresee the crash of the market, we wouldn’t probably have launched a green initiative, because these ventures really need capital. The only way in which we were lucky, I think, is that the government stepped in, particularly the Department of Energy. Led by this great administration that put in place these loan guarantees.”

For example, Kleiner backed 8-year-old fuel cell company Bloom Energy, which Doerr said in his speech has “required ten times as much capital,” compared to other venture companies. It took Google $25 million to get to an IPO, Doerr pointed out, and Bloom has already taken $250 million. Doerr said he’d wager Bloom will take “nine years to a successful public offering.”

The lack of exits of Kleiner’s greentech portfolio hasn’t been a secret to anyone who follows their investments closely. Yes, biofuel firm Amyris went public this year, but only produced a modest return. Power company Areva bought solar thermal startup Ausra, but terms of that deal were undisclosed and were likely also modest. That’s about it; the “bevy of successful exits,” as the Fortune article points to, certainly hasn’t been in greentech.

Has any high-profile investor made a lot of money yet from its greentech investments? Not yet. Last week, Sean Parker referred to greentech investing as a bubble in this New York Times interview: “It is not clear anyone will make money on their green-tech investing. It looks like it was a bubble.”

Peter Thiel, co-founder of PayPal and partner with The Founder’s Fund and Clarium Capital, expressed a similar sentiment earlier this year. Thiel said “cleantech companies for a variety of reasons don’t work . . . the one thing we haven’t done is an alternative energy investment. . . I think a lot [of alternative energy funding] has been misdirected.”

Last year, when Netscape founder and investor Marc Andreessen launched his $300 million fund, he went out of his way to note the fund would keep a wide berth from anything related to cleantech, energy and transportation. He told Fortune, flat-out: “No cleantech, no rocket ships, no electric cars.”

According to a widely cited report in Reuters, there’s been a sharp decline in investing in early-stage cleantech companies because of the lack of returns for investors. VC investment overall fell in 2009 because of the recession, but investments in new, early-stage, cleantech startups dropped even more compared to all investing: 35 percent of VC dollars went to early-stage and seed cleantech companies in 2007, but just 20 percent went to that group in the first half of 2010. Investors, lacking greentech exits, seem to be turning elsewhere.

But as I put it in this post a couple of months ago, I think there’s a learning curve happening for cleantech investors; it’s just taking awhile to happen. Yes, a bunch of the cleantech investors are getting weeded out, and some of the early funds have been misspent. There’s only so much LP money you can spend over so many years without giving some back.

For more research on cleantech financing check out GigaOM Pro (subscription required):

  1. Thanks Katie.

    It will be interesting to watch Kleiner’s evolution with respect to investments in cleantech. The investment in Bloom – cited by John Doerr and your article – has been an interesting one.

    This one investment, however, is neither a model for cleantech investing or even for fuel cell investing. Fuel cells were around long before the term ‘cleantech’ was coined. The first SOFC, for example, was constructed in 1937.

    While Bloom has done well thus far, this is the closest that any solid oxide fuel cell (SOFC) company has come to commercial success. Of the four main FC types, SOFC is the last to have achieved initial commercial success.

    Hopefully they are wildly successful, and the fuel cell community is likely pulling for their success. It would be short-sighted, though, to use the case of Bloom, or even fuel cells, as a bellwether for cleantech. Whether Bloom is a cashivore or not has little to do with the overall cleantech opportunity.

    Regards, David

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  2. [...] These funds help the firm put on carefully staged marketing events to attract entrepreneur attention and potentially return to relevance. For a while, KPCB has focused all its efforts on cleantech investments but now (from the outside at least) seems …. [...]

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  3. Isn’t the issue with cleantech investments generally that one cannot build a sustainable business, much less expect great exits, around technologies that are 5% improvements for technologies (PV, Concentrated Solar, Biofuels, etc.) that produce electricity at 2-20x the going rates?

    Said differently, who in the world of making money cares if a start-up can produce electricity that is only 9.5x more expensive than fossil generated electricity instead of 10x?

    Understood that we need 5-10-20% year over year improvements in these technologies to get to where we want to be, but this is government R&D land, not VC.

    Lastly, the VCs should be looking for or demanding renewable energy plans that can either make money in a particularly difficult to serve niche (military, remote, capital constrained, etc.) or that can actually compete or be 10x less expensive than fossil options without mythical carbon taxes and massive government regulation.

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    1. We are a lot closer to meeting grid parity with solar and wind than you may be aware. In my current EIR role, I am aware of a number of businesses that will help reach grid parity soon.

      Your points are well taken, however, as not all Cleantech opportunities fit the VC model.

      This morning I published an article on the fourth Cleantech Pillar – Process. This article discusses both selection of appropriate Cleantech investment opportunities as well as management issues that need to be optimized for VC returns.

      http://d-bits.com/cleantech-pillars-process/

      Regards, David (http://d-bits.com)

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      1. I am 100% sure that as EIR you hear from a lot of companies that claim they will reach grid parity! I am aware that wind is starting to deliver at prices that are almost competitive if tax credits are included and the cost of intermittency is waved off – which is OK in the short run or at the margin.

        Part of what I failed to express was that from my perspective VCs in Cleantech have been investing thinking that small improvements would be enough when in reality we need game changing breakthrough technologies – whether these are part of the technology/IP package that gets us to a bigger breakthrough or the big breakthrough itself.

        Looking forward to reading your article.

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  4. [...] there remains a decent shot of moving the energy bill forward in the 2011 time frame.” On the emerging trend of some VC’s rethinking their greentech investments, Reicher tells me “the VC community is seeing that success in energy tech takes a lot longer [...]

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  5. I have been witnessing this first hand for the past few years. Many cleantech “companies” are really projects requiring project financing and yielding return opportunities that are in line with utilities. That is not what venture capital is about. I am watching for a trend of venture investors (angel and institutional) getting more savvy on getting companies to market with smaller tranches of early lifecycle capital – in line with Doerr’s comment about Google’s capital requirement pre-IPO.

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  6. Basically, John Doerr should have stayed in IT world. He and his freshly minted MBAs got very costly education with the LP money. They hired fuel cell expert too late in the game. There is difference between performing due diligence on financial models and really understanding the technology hurdles.

    And now they are deep in soup that they have no option but to keep pouring in more money into companies like BloomBox. I just keep wondering about the dumbo-factor on the follow-on investors.

    Power Generation is very different world…I just keep wondering about the value proposition of Bloom Box in comparison to GE Jenbacher engines that are approaching 43% electrical efficiency. Bloom is running at 50% electrical efficiency and the fuel cells will take billions and many years to reach the reliability of the turbines.

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  7. [...] Kleiner Perkins – EEStor, Bloom Energy, I turn green 1/3rd of the way down their list.  They’re the originators of the fundamentally flawed “stealth in cleantech investing strategy.”  And they make me look humble (which is hard to do).  Even making a few dollars in Amyris, doesn’t come close to making it up.  Of course, maybe the latest news articles are right, and they’re pulling out of cleantech? [...]

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  8. [...] Hara is one of the bright spots in Kleiner Perkins cleantech portfolio, and Hara raised at least $20 million from investors including Kleiner, Nth Power, and JAFCO [...]

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  9. [...] earlier, KPCB is taking a sharp hairpin turn at a high speed as it tries to shift its investment momentum away from clean-tech to Internet and digital media investments. Hiring Mary Meeker was the right move, and now with the [...]

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  10. [...] venture firms that moved from Internet investing to cleantech — like Kleiner Perkins — seem to be backing off a bit from their cleantech ambitions, there’s still a lot of lower profile cleantech investors that [...]

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