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Web Firms Step Into Green Shadow in the Valley

John Doerr at Web 2.0 SummitAt last week’s Web 2.0 Summit — the annual convention that has come to represent the new web boom –- a leading web industry journalist asked me if green technology was here to stay, or if it is just another fad that would die at the hands of dropping gas prices and a recession. “I think it’s one of the world’s biggest opportunities,” I responded, and what I wish I’d have added is this: It’s also trumping the web in terms of excitement, innovation and inspiration for the next generation of entrepreneurs.

That cleantech is, at the very least, what people are excited about was obvious at last week’s Summit. Green startups — even those that had little to do with the web — took over large parts of the show. Former Vice President, Nobel Peace Prize laureate and Kleiner Perkins cleantech investor Al Gore received a standing ovation for his keynote. The CEO and Chairman of high-profile electric vehicle startup Tesla Motors, Elon Musk, and the CEO of electric vehicle infrastructure startup Better Place, Shai Agassi, both had long fireside chats with the conference-organizers. And half of the startups in the launchpad section of the show were green companies — Carbonetworks, GoodGuide and Sungevity.

Perhaps the biggest indicator at the show, though, was when John Doerr, partner at Kleiner Perkins Caufield Byers, declared green technology to be “the growing thing in Silicon Valley” and said kick-starting energy research will be President-elect Barack Obama’s most important task. Kleiner was responsible for Internet investments like Google (GOOG) and has now allocated a third of its fund to green investments — equal to the amount it’s pumping into digital media/web plays. Doerr even told the audience that Kleiner partner Bill Joy would be a good choice for Obama’s Chief Technology Officer; Joy has stated for the past year that he is staying away from most Internet investments and focusing entirely on innovations to fight climate change.

So far, the overall venture dollars have started to follow this path, too. According to PricewaterhouseCoopers and National Venture Capital Association, while venture funding for the third quarter of 2008 was down 7 percent from the second quarter to $7.1 billion, cleantech’s portion of that investment grew 14 percent over the second quarter to $1 billion. Internet companies accounted for $1.1 billion of those venture dollars, a 36 percent drop from the second quarter. Back in 2006, cleantech became the third largest venture category, under biotech and software, and remained the third largest in the latest quarter.

That’s not to say that cleantech investing won’t be affected by the current financial crisis. Analysts with the Cleantech Group are expecting that in the next quarter later-stage green firms that need to raise a lot of capital –- e.g., to fund biofuel plants, solar thermal farms or green car factories — could find trouble. Tesla Motors already couldn’t raise a planned $100 million financing round on the terms it wanted and turned to an internal round of $40 million, with Tesla CEO Elon Musk carrying half the load. Large clean power projects like T. Boone Pickens’ wind farm are also getting cut back.

But the overall cleantech industry will survive a downturn. The opportunity for entrepreneurs and innovation is large — and just starting to be realized. Energy alone is a $6 trillion market, compared to $100 billion for the Internet. And the industries that cleantech entrepreneurs are trying to tackle — power generation, the power grid, the water system — have been largely neglected in terms of technology innovation. As Thomas Friedman points out in “Hot, Flat, and Crowded,” paraphrasing GE’s CEO Jeffrey Immelt: Over three decades GE has sold eight or nine generations of medical devices, but only one generation of energy technology.

There’s also the fact that the underlying problems that have lead to the ascendancy of cleantech are still persistent. The price of gas might fluctuate wildly, but the planet is still growing increasingly warm, and the population is still expected to boom to more than 9 billion people in the next three decades — largely in developing countries like India and China. Cleantech is about figuring out smart, sustainable ways to allocate resources like energy, water, and raw materials; the need for which won’t disappear in the face of temporarily cheap fuel.

The recession could also turn federal legislators green in the coming months. President-elect Obama is calling for the creation of 5 million green jobs in a decade and has pledged to provide more support for renewable energy than any other previous administration. Josh Green, managing partner at MDV thinks that Obama’s cleantech plan will make up part of the economic recovery package, as does Al Gore. If green jobs really can help ease the pain of the recession, the cleantech industry would find even more government and private sector support when we eventually get to better financial times.

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Photo courtesy of Brian Solis via Flickr.

5 Responses to “Web Firms Step Into Green Shadow in the Valley”

  1. Based on the companies that we see in our business in the last year, I think that we are starting to see real and fundemental innovation in the cleantech space. Hopefully, declining energy prices buy us some time until these innovations turn into commercially available products.

    As the cleantech market matures, I think that people are getting smarter about what is real and credible. Just calling some clean or green is no longer enough. I think the defeat of the California energy propositions are evidence of that Hopefully, this means that any government money will be well-spent.