Monday, May 11, 2009

VC's: "Shifting Their Energies"

From the New York Times:
In 2003, when Foundation Capital, a venture capital firm, started looking for new investors for Silver Spring Networks, one of its portfolio of companies, it was rejected by every firm it called.

Investors in clean technology were just not excited about Silver Spring, because it makes hardware and software that utilities use to connect electric meters in a digital grid. They were more interested in companies that envisioned making energy from the sun’s rays, algae or tropical plants.

“People laughed at us,” said Adam Grosser, a partner at Foundation Capital.

Last summer, the thinking in Silicon Valley began to shift. Five top venture firms vied to invest in Silver Spring. The company chose Kleiner Perkins Caufield & Byers, perhaps the most well-known green technology investor, and two of its partners, John Doerr and Al Gore, joined Silver Spring’s advisory board.

Venture capital is starting to move away from its infatuation with alternative energy and returning to one of its traditional strengths: applying information technology to improve the efficiency of energy consumption.

Many investors say developing new forms of energy can consume hundreds of millions of dollars over many years before showing any return. Mr. Grosser’s firm, however, is looking for technologies that reduce demand for energy. “We need to move markets with small amounts of money,” he said.

About half of the dollars invested in clean technology last year went to alternative energy companies. In the first quarter of 2009, though, only one-third of venture dollars invested in clean tech went to these companies, the National Venture Capital Association said.

Not all investors in clean technology think alternative energy companies must be capital-intensive. Khosla Ventures, one of the most prominent venture firms, has invested in companies that make fuel from corn, sugar, plants, wind and the sun.

“I think that’s a false generalization for people who take a very superficial view of clean technology,” said Vinod Khosla, the firm’s founder. “It’s not that hard to find ways around capital intensity. We are very active in doing that, and it involves technology or business strategy.”

Mark Heesen, president of the National Venture Capital Association, said the eBay or the Google of the clean tech industry is not going to come from energy-efficiency companies but from those that create new forms of fuel. “Does it cost more money to do that? Absolutely,” Mr. Heesen said. “But when it comes to game-changing technologies, you’re not going to get it with doubles and triples">>>MORE