First Solar IPO $20.00 Nov. 17, 2006.
Top tick $317.00 May 14, 2008.
Yeah, that's a boom, bust cycle.
John Doerr was crying. The billionaire venture capitalist had come to the end of his now-famous March 8, 2007, TED talk on climate change and renewable energy, and his emotions were getting the better of him. Doerr had begun by describing how his teenage daughter told him that it was up to his generation to fix global warming, since they had caused it. After detailing how the public and private sectors had so far failed at this, Doerr, who made his fortune investing early in companies that became some of Silicon Valley’s biggest names—Netscape, Amazon.com, and Google, among others—exhorted the audience and his peers (largely one and the same) to band together and transform the nation’s energy supply. “I really, really hope we multiply all of our energy, all of our talent, and all of our influence to solve this problem,” he said, falling silent as he fought back tears. “Because if we do, I can look forward to the conversation I’m going to have with my daughter in 20 years.”
As usual, Doerr’s timing was perfect. Just weeks earlier, Al Gore’s An Inconvenient Truth had won an Oscar for best documentary. (Gore is now a partner in Doerr’s green tech team at the VC firm Kleiner Perkins Caufield & Byers.) Interest in climate change had never been higher. And as the economy recovered from the dual shocks of the Internet bubble and 9/11, Doerr’s fellow Silicon Valley VCs were already looking to clean technology as the next big thing. What followed was yet another Silicon Valley gold rush, as the firms on Sand Hill Road were pulled along by the promise of new fortunes and the hope that they would be the ones to wean America off of fossil fuels. The entrepreneurs and tech investors who had transformed media and communications were ready to make Silicon Valley the Saudi Arabia of clean energy.
Never mind the fact that green technology had been struggling to achieve critical mass for decades. “You had folks who came in with the hubris to say, ‘I know these guys have been working on this for 50 years,’” says Andrew Beebe, chief commercial officer for Suntech, the Chinese solar manufacturer. “‘But I’ve got $50 million and I can blow the doors off this thing.’”
In 2005, VC investment in clean tech measured in the hundreds of millions of dollars. The following year, it ballooned to $1.75 billion, according to the National Venture Capital Association. By 2008, the year after Doerr’s speech, it had leaped to $4.1 billion. And the federal government followed. Through a mix of loans, subsidies, and tax breaks, it directed roughly $44.5 billion into the sector between late 2009 and late 2011. Avarice, altruism, and policy had aligned to fuel a spectacular boom.
Anyone who has heard the name Solyndra knows how this all panned out. Due to a confluence of factors—including fluctuating silicon prices, newly cheap natural gas, the 2008 financial crisis, China’s ascendant solar industry, and certain technological realities—the clean-tech bubble has burst, leaving us with a traditional energy infrastructure still overwhelmingly reliant on fossil fuels. The fallout has hit almost every niche in the clean-tech sector—wind, biofuels, electric cars, and fuel cells—but none more dramatically than solar.
Doerr’s TED talk wasn’t the start of this VC-fueled drive for a new-energy economy. Rather, it was a product of a transformation that was sweeping Silicon Valley. Many of the investors and entrepreneurs who had ridden the Internet bubble to various levels of success had already started pouring money and ideas into clean tech.
One of the first to bet big was Martin Roscheisen. He sold his email-management firm eGroups to Yahoo for $450 million, and in 2002 he cofounded Nanosolar, a panel manufacturer. But that was just the beginning. Vinod Khosla, cofounder and former CEO of Sun Microsystems, moved his VC firm, Khosla Ventures, heavily into biofuels and other renewables. Beebe, cofounder of the dotcom-era darling Bigstep.com, a web-hosting company, helped start the solar panel maker Energy Innovations in 2003. Arno Harris, who had helped steer what he now calls “an Amazon-Kleiner Perkins online wine store that left a big hole in the ground,” worked with Beebe at a subsidiary of Energy Innovations before founding Recurrent Energy, a company that develops utility-scale solar projects, in 2006. And PayPal cofounder Elon Musk has put $96 million of his own money into the electric-car startup Tesla Motors and was joined by well-known VCs Steve Jurvetson and Nancy Pfund.
In 2008, by which time Kleiner Perkins had allocated more than $300 million to clean tech, the firm launched a $500 million growth fund that it said was “intended to help speed mass-market adoption of solutions to the world’s climate crisis.” Doerr, who told Forbes that curbing climate change was “the largest economic opportunity of the 21st century, and a moral imperative,” helped direct money to everything from solar to smart meters.
These investors were drawn to clean tech by the same factors that had led them to the web, says Ricardo Reyes, vice president of communications at Tesla Motors. “You look at all disruptive technology in general, and there are some things that are common across the board,” Reyes says. “A new technology is introduced in a staid industry where things are being done in a sort of cookie- cutter way.” Just as the Internet transformed the media landscape and iTunes killed the record store, Silicon Valley electric car factories and solar companies were going to remake the energy sector. That was the theory, anyway....MUCH MORE