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Summary:

President Obama’s gotten hit with a one-two punch in recent weeks with two scandals that share some surprising similarities surrounding risky tech startups, politics, money and the question of how to create innovation around infrastructure, one for energy and the other for communications.

Solyndra's ground breaking ceremony in 2009

Solyndra's ground breaking ceremony in 2009

President Obama has been hit with a one-two punch in recent weeks with two scandals that both involve risky tech startups, politics, money and the question of how to create innovation around national infrastructure, one for energy and the other for communications. While I covered solar maker Solyndra’s bankruptcy, which took down with it an over $500 million government loan, Stacey Higginbotham has been writing about wireless network company LightSquared’s plans and emerging political story.

Here’s where I see these two narratives connecting in various places, and some potential lessons from these two scandals:

1. The political climate. Both Solyndra and LightSquared faced hearings from Republican committees last week, looking to investigate whether the White House stepped in and helped garner these companies federal support — for Solyndra that was the awarding of a $535 million loan, and for LightSquared it was both a conditional waiver from the FCC for its spectrum plans, and the potential interference from the White House of the testimony of an influential General. LightSquared is now the subject of House Armed Services Committee hearings, and Solyndra is fodder for the House Energy and Commerce Committee hearings.

As the Guardian put it: “One of the consequences of Republicans winning control of the House of Representatives was always going to be embarrassing probes by congressional committees. Now the results are starting to come out.” Cronyism is the new term of the month, and Republican Presidential candidate Michele Bachmann even started using it about Obama in her speeches.

LightSquared CEO Sanjiv Ahuja

2. Technology risk. Solyndra and LightSquared were born out of “big ideas” that delivered innovative, though high-risk, technology. Solyndra has already proven to be a bust — the risks took over — so I’ll start with it. Solyndra’s business plan focused on making solar panels without using silicon (the material that traditional solar panels use), with the idea that the price of silicon would go up. Instead, silicon prices went down, and it couldn’t compete with traditional solar panel makers. Solyndra’s other innovation was based around building a panel out of a series of tubes that cost more to produce, but the company thought would be cheaper to install, and thus would have lower overall costs. That never proved out in the market place because the company’s high manufacturing costs led it to run out of money before that thesis could be proven/tested over time.

LightSquared hasn’t yet become a disaster, but it’s ambitions are so large that Stacey thinks it could be building a castle made of sand. The company aims to create a combined satellite and terrestrial network that could provide a competitive wireless broadband alternative to the nation. LightSquared’s tech risks come from the interference its spectrum causes with GPS signals, as well as the massive amount of funding it needs and overall questions about the viability of a wholesale business model involving 4G.

3. High flying investors. These two companies wouldn’t have gotten off the ground without large amounts of funding from a few (and potentially influential) investors. For LightSquared, that’s Philip Falcone, the owner of Harbinger Capital, which has a $3 billion majority stake in the company. For Solyndra, it’s George Kaiser and his firm Argonaut Ventures, which held 39 percent of the solar maker, with Madrone Partners, USVP Venture Partners and Rockport Capital Partners holding far smaller shares. Solyndra raised over a billion dollars from private investors plus the $535 million government loan. While investors like these commonly have high appetites for risk, when the ventures start relying on government money or support, the public and lawmakers have decidedly less of an appetite for risk.

4. The government picking (the wrong?) winners. Solyndra received a government loan from the Department of Energy’s loan guarantee program, which doles out funds to the dozens of companies it has selected. In essence it picks energy winners and losers. It has now come to light that the DOE helped Solyndra restructure its loan earlier this year when Solyndra was imminently going to go bankrupt, and the DOE even restructured it so Argonaut would get its most recent funding paid back before the government loan (tax payer funds). In the case of LightSquared, the FCC has been granting waiver upon waiver for the company, even as its spectrum became suddenly (and surprisingly) problematic because of the GPS interference.

5. Ambitious infrastructure goals. LightSquared’s goal is to offer a wireless broadband competitor in an increasingly duopolistic U.S. wireless broadband market, and the FCC and the Obama administration share that goal. Solyndra was looking to contribute to the rise of clean power and distributed rooftop solar generation, which is a carbon-free decentralized power source, and could help fight climate change. The Obama administration and the DOE share that goal, too. But developing new infrastructure for both energy and communications, takes massive amounts of funds, and large partners. Both of these things are difficult for startups to achieve, with or without technology and business plan issues.

6. How does the government support tech innovation without attaching to risky startups? There are, no doubt, other ways for progressive administrations to spur technology innovation. For clean power, the DOE has other subsidy programs and projects that seem to be working better than its loan guarantee program. There’s the Investment Tax Credits, the 1603 treasury grant program, which are much less risky, as well as the R&D-focused APRA-E program that doles out small grants for university and startup research.

7. The incumbent technologies have a lot more political connections, and money. While in recent weeks Republicans are pointing to the potential political connections of Solyndra and its investors, and LightSqaured and its investors, the incumbent technologies that these companies are competing with have far more political influence and funding. Some of the top spenders of lobbying dollars in 2010 were AT&T and Verizon, which don’t necessarily support wireless broadband competition, and coal-heavy power Southern Company, which has interests in keeping its fossil fuel infrastructure in the ground.

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  1. This article is quite silly; it is one thing when a hyperpartisan congress drums up made up ‘scandals’ and ‘cronyism’ [quoting michele bachman - really?]. It is quite another when gigaom amplifies the so called ‘scandals’

    I like you guys – but please don’t jump into the washington generated circus, stay serious. please.

    1. The fact that Solyndra went under has nothing to do with why this is a scandal. The scandal is that Solyndra wasn’t a viable candidate for the program through which the loan was offered, but they got it anyway, evidently because a major investor in Solyndra is also a major backer of the Obama campaign. In addition, after Solyndra burned through that first half billion dollar taxpayer-guaranteed loan and was again facing bankruptcy, the DOE permitted them to obtain additional financing making the new, private lenders senior to the government for any liquidation proceeds, in evident violation of the law.

      So we have a known conflict of interest, and a known violation of law. And this is based just on what we know so far, without a formal investigation having taken place yet.

      Now, is this the worst thing the Obama administration has done? Of course not. But scandal? Absolutely.

  2. Solyndra is not a “scandal”. Loans are made thru DOE frequently for fossil fuels and nuclear power plants, too, which have also failed & they were never used against the president at that time. This is pure partisan harrassment by Issa.

  3. Katie Fehrenbacher Sunday, September 18, 2011

    @carolerae, the Solyndra story is so big that John Stewart covered it on the Daily Show: http://gigaom.com/cleantech/solyndra-story-makes-the-daily-show/

  4. If you lot of Obama fanboys don’t think this is a scandal, stay tuned. It’s just the beginning. Check out local Chicago paper: http://www.chicagotribune.com/news/columnists/ct-met-kass-0918-20110918,0,6401818,full.column

  5. The Federal government guaranteed a $525 million loan to Solyndra, and it’s a scandal. But Mississippi, one of the poorest states in the nation, without the ability to print money, gives two solar firms over $150 million http://gigaom.com/cleantech/as-solyndra-falls-stion-scales-up/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+OmMalik+%28GigaOM%3A+Tech%29), and it’s not a scandal. Why? Is it only a scandal because Solyndra went under, and the two firms in Mississippi haven’t (yet)?

    The loan process for Solyndra began and advanced incredibly far under the Bush administration. Yes, it was approved in 2009 (when the government was scrambling to fund programs that put shovels in the ground, to help stop the downward spiraling economy), but it was obviously a serious candidate for federal support even before Obama took office. So what is the scandal? Is there no scandal in Mississippi, where they spend less on schools than almost every other state, but can provide over $150 million in assistance to two private firms?

    1. Just a note — the same sort of “scandal” happened here in New Mexico with state and local subsidies to solar panel companies that were going to provide hundreds of jobs – and slipped away in the night after the money was used up.

      Politicians are no less gullible than private investors. They just have taxpayers’ money to play with.

  6. And in regards to a Lightsquared scandal, a much bigger scandal would be if the government allows ATT to buy T-Mobile.

  7. NOT a scandal? Really? Solyndra was the poster child for Obozo’s Green jobs campaign! Where have you been? As for partisan harrassment… Really? Im an American taxpayer and could easily figure out that any company getting my tax dollars to ‘help’ their company whilest selling their product at less than the the cost of producing the product is NOT a worthy investment! Now, add in that numerous executives from Solyndra were on the White House guest list more than 20 times prior to becoming the Obozo Green job poster children…. reaks of Scandal!! Furthermore, read this Article entitled “Obama’s Solyndra scandal reeks of the Chicago Way” published in the Chicago Tribune… http://www.chicagotribune.com/news/columnists/ct-met-kass-0918-20110918,0,3951633.column?page=1 … is that another instance of supposed partisan harrassment too? Oh contrare! The Chicago Tribune ONCE endorsed Obozo!!

  8. @Katie, Congratulations, you are now an associate member of the right wing-nut echo-chamber, and so I’m removing Gigaom from my bookmarks. Also, Jon Stewart (you spelled his name wrong in your comment), was making fun of the echo-chamber in his segment on the daily show. It was hilarious and you are apparently clueless.

  9. I am reading this article and I get an entirely different message from it than the comments listed. The message I am getting is that it is smarter for Energy companies to raise private investor money than to take money from the government. I agree the title is misleading though, had the author used a title that focused on this message I am sure there would be a lot happier readers and Billtoe would still have Gigaom on his bookmark.

  10. @jonathan No I wouldn’t.
    Also, anyone who is tired of the manufactured solyndra controversy, and would like to tune in to the realities of what is happening in solar, Congresswoman Gabrielle Gifford (remember her) held a Solar Summit last week. You can watch all 3 hours of it at her website (google giffords solar summit). I watched all 3 hours of it, but my favorite speaker by far was from the Marine Corps (last speaker), who talked about how the Marines are working with industry to push solar technologies in a direction that is beneficial for them (and therefore everybody). I found it very informative and inspiring.

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