MENLO PARK, Calif. — There's little about the
building where Vinod Khosla runs his tiny venture-capital firm to
suggest he's at the forefront of a global effort to revolutionize how
the world gets energy.
Small signs point discreetly to Khosla Ventures
and other tenants at the low-slung building tucked inside a quiet
Silicon Valley office park. One of the USA's richest men, Khosla is
sitting in a sparsely furnished conference room in a blue pullover and
blue slacks. He sips tea as he describes how his children view his
rising passion for renewable energy.
"They think it's cool Dad is saving the planet,"
he says with a grin. Then he pauses, uncomfortable with how that
sounds, and adds that he's not a fan of such "grandiose" statements.
Yet, saving the planet is what Khosla and a
growing number of financiers, entrepreneurs and political luminaries
hope for as they chase new ways to wean the world from oil, coal and
other non-renewable energy sources now threatening the environment.
Google's (GOOG) young
founders, Sergey Brin and Larry Page, just announced plans to pump
millions into the effort. Former vice president Al Gore, who shared the
Nobel Peace Prize for drawing attention to global warming, has joined
one of the Valley's most prominent venture capital firms in its "green
tech" investing. Virgin Group founder Richard Branson is offering a $25
million prize to anyone creating the best way to remove greenhouse
gases from the atmosphere.
Khosla, 52, isn't as well known. But the co-founder of Sun Microsystems (JAVA) has
quietly emerged as one of the biggest forces in green tech less than
four years after starting Khosla Ventures along famous Sand Hill Road.
The route is home to many of the world's most powerful start-up
Khosla won't disclose how much he's invested in
energy start-ups since launching his firm. But Khosla Ventures, where
he invests only his own money, pops up in many of the biggest deals in
an industry now investing boatloads in the sector. His six-employee
firm ranked No. 1 in deals during the first nine months of this year;
it participated in 14 worth $68 million, the National Venture Capital
Association (NVCA) says.
VCs in the USA invested an average $15.5 million
in each of the 168 green tech investment deals through the third
quarter, a USA TODAY analysis of the trade group's data found. That's
nearly twice the $8 million average for deals overall, underlining
fears shared by Khosla that a green tech bubble may be forming.
"I suspect we'll see some yo-yos," Khosla says,
referring to the boom-and-bust cycle that's marked many nascent
industries in the Valley.
That higher risk is a big reason why Khosla, who
came to the USA 30 years ago from India, started Khosla Ventures with
his own money, rather than raising a fund with money from banks and
other investors. "I could afford to lose my own money," he says, "but I
couldn't afford to lose other people's money."
Repaying the world
Khosla has a lot of loot to lose. Forbes
magazine estimated his wealth at $1.5 billion in the magazine's list
this fall of the richest Americans. That's money from his years as a
partner at Kleiner Perkins Caufield & Byers, the VC firm Gore just
joined; Khosla worked there before starting his own shop.
He's still interested in making money. But he
tempers that with a desire to make the world a better place, too.
Khosla is an "extremely smart man" repaying a world that helped make
him wealthy, says Mark Heesen, president of the NVCA.
Most VCs invest in start-ups on behalf of
institutional investors and rich individuals, hoping to profit when
successful companies sell themselves to bigger businesses or to the
public through initial public offerings.
Venture capital is one of the riskiest forms of
investing, because start-ups often flop. The risk is even greater in
green tech ventures because they require more capital to build ethanol
factories or huge solar collectors than do typical tech start-ups,
Bill Wiberg, a partner at Advanced Technology
Ventures near Boston, agrees. "You just have to believe the end
opportunity will warrant the time and the capital," he says.
Researchers in government and the private sector
have pursued alternative energy sources for years with only middling
success. Beyond the challenge of raising money and fighting powerful
oil, gas and automobile industries, scientists have failed to produce
an alternative that's cheaper than fossil fuels.
But Khosla thinks the technologies he's backing
are near where they can compete against oil without government
subsidies now required to make them competitive. "I want oil to compete
with us — not the other way around," he says.
Near Macon, Ga., for example, Khosla-backed
Range Fuels last month started construction on a factory meant to
produce the gas alternative ethanol. His other investments include
GreatPoint Energy, which plans to make low-cost natural gas from coal.
(Wiberg's firm also invested in GreatPoint.) Plus, Khosla has helped
finance dozens of other ventures in solar, wind and geothermal energy.
He says many of these technologies can be proved
viable in the next five years. "In 20 years, we'll have a very
different world," he says. "I'm far more optimistic than anyone else."
His optimism reflects years of accomplishments —
and changing market dynamics. Oil prices have been rising most of this
year, reaching as high as $98 a barrel last month. It closed Monday at
Higher oil prices help close the gap with pricey
alternatives such as solar panels. Oil could fall back to $70 a barrel,
says Wal van Lierop, CEO of Chrysalix Energy Venture Capital in
Vancouver. "But over the next year," he says, "the tendency will be up,
and very soon, we will go to $100 a barrel."
Khosla grew up in New Dehli, where he got an
electrical engineering degree from the Indian Institute of Technology,
a school on par with Harvard University or Massachusetts Institute of
He moved to the USA in 1976, getting a master's
degree in biomedical engineering from Carnegie Mellon and an MBA from
the Valley's Stanford University in 1980. After co-founding Sun, he
joined Kleiner Perkins, where he remains an affiliated partner. Kleiner
has backed some of the biggest names in tech, including Amazon and
search king Google.
The Chindia challenge
Some of the most promising research in renewable
energy is in wind generation and solar thermal — using the sun's energy
to create steam that powers generators of electricity, says Steve Chu,
director of the University of California's Lawrence Berkeley National
Google's non-profit arm, Google.org, is
investing in eSolar of Pasadena, Calif., developing power plants
powered by the sun. And it's backing Makani Power in Alameda, Calif.
Makani is working on high-altitude wind energy technologies.
Ultimately, new energy sources will only work if
they're adopted in China and India, Khosla says. They are two of the
world's fastest-growing countries, with a nearly insatiable appetite
for oil and coal to fuel industries that many scientists blame on
rising overall world temperatures. He calls it the Chindia challenge.
"If India and China don't adopt these low-carbon technologies," he says, "then the whole planet is toast."
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