Wednesday, January 26, 2011

80% by 2035

Last night the President gave one of the better State of the Union speeches in recent memory. In contrast to prior years, where the President went through a laundry list of things he does or doesn’t like followed by half of Congress rising in exuberant ovation and the other half huffing and puffing while sitting on their hands, this year’s speech was well received by most spectators in the chamber and focused on a single over arching theme: How does America Win the Future?

These days, it seems that people are more afraid of China taking American jobs and displacing this country’s place as the leader of the world’s economy than they are of terrorists hijacking airplanes. Unlike a lot of fears we all hold dear - this one is quite warranted.

At the heart of President Obama’s vision for America is a belief that the innovation, ingenuity and spirit that propelled us to the top of the 20th century remains unmatched in the world. We have shown that in the most perilous times, all we need to do to achieve something, is decide to achieve it. In answering this generation’s Sputnik moment, the President called for this country to set a national target of 80% renewable energy by 2035. Many out there may think this is unrealistic or more of the same job-killing tree hugging rhetoric from a liberal administration.

As it stands, I don’t know if it is achievable.

But one thing is for certain, if we don’t do it, someone else will. And if you think Americans hate losing their jobs to China – imagine how upset they will be when they depend on China for their energy needs.

As we speak, China is the world’s leading exporter of solar panels and is rapidly taking over the wind and LED industries. While our elected leaders were busy arguing whether or not we should be subsidizing clean energy, if the EPA is constitutional or if climate change is even real – the rest of the world moved full speed ahead in financing and fostering the industries that will one day power our planet. It may not happen by 2035, or 2085 for that matter, but it will happen. And when it does, we can either be at the forefront of technology or find ourselves in the unfortunate position of having replaced a dependency on foreign oil with a dependency on foreign solar panels, wind turbines, batteries and semiconductors.

So how do we get there? I don’t have all the answer, but certainly a lot of things have to change.

We must stop decrying the construction of offshore wind farms because they might ruin the view (the Kennedy’s and everyone on Martha’s Vineyard – you know who you are); stop clinging to spoils of yesterday’s energy technologies (the distinguished gentlemen from West Virginia and Gulf Coast states – you know who you are); and perhaps most importantly, accept that Bill Gates, Warren Buffet and the majority of bankers at Goldman Sachs might have to pay higher taxes.

If not – well, at least it was a good speech. I’m sure China will ship everything with English instructions anyway.

Saturday, January 15, 2011

The State of Venture

It seems venture capitalists these days are busier than ever. Silicon Valley is quite preoccupied with developing the next great app, social media tool, or business plan that gives the richest people that have ever walked the face of the earth the ability to buy more things they don't really need.

One only has to look at the latest valuations of Facebook ($50 billion and counting), Twitter ($4 billion), Groupon ($6 billion), Zynga ($5 billion), any many others to realize that this approach has worked out well for investors and entrepreneurs. Yes, it has worked out for the rest of us as well. These companies provide unique services we can't seem to get enough of and have impacted the way we live, communicate, advertise, and play.

So what's the problem? Well, maybe nothing. Except that perhaps investors with the capital, risk appetite and experience to help foster technology innovation should be out searching, not for the Zuckerbergs of the world, but for the Thomas Edisons. There was a time when Silicon Valley was primarily focused on solving scientific and engineering problems - playing a key role in developing the microprocessor, establishing semiconductor foundries, and inventing our modern day operating systems and programming languages. Over the last 50 years, these innovations helped usher in the greatest rise in GDP per capita, and by extension standard of living, since the first industrial revolution.

By comparison, the latest Silicon Valley successes have empowered me to know what mood a girl I met at a party 3 years ago is in, in the middle of playing a virtual reality game where I'm a farmer, as I get 50% off yoga pants - all while being updated on Ashton and Demi's dinner plans and Sarah Palin's latest quip characterizing people that went to Harvard as douche bags.

OK - I'm half kidding...but this reality isn't lost on everyone. There was a New York Times article a few months ago on this point, and I know of one prominent venture capitalist, Peter Thiel, who ironically was the first investor in Facebook, that is making a strong push around the venture community to return to science investing.

All of this is a bit of a preamble to what this blog is really about - venture investing in cleantech. There have been many questions raised over the last few years about whether the venture model is appropriate for cleantech. It's not difficult to see why. It's hard to get a 100x (or even a 10x) return on investment when you have to invest hundreds of millions of dollars into an enterprise. By contrast, the $500,000 that Peter Thiel famously invested in Facebook turned him into a billionaire. Moreover, technical milestones are expensive and take a long time to achieve, so it is difficult to cut your losses early; and the sales cycles are long and hard. What is perhaps the biggest killer, is that most cleantech companies don't benefit from network effects - the more people use them, the more valuable they become, which makes more people use them. Network effects are what helped many of the companies I mentioned earlier grow exponentially.

In short , I understand all the cons of cleantech venture investing - and as someone once told me, "you can't fight the math". But in my view, because it's hard is exactly the reason why it's appropriate.

Tom Wolfe wrote about the test pilots that became our country's first astronauts in
The Right Stuff, and seemingly captured their constant desire to push the outside of the envelope - that is, to exceed the limits of what is considered safe or possible. Going to the moon doesn't seem to captivate us like it used to. When I worked as an aerospace engineer on space programs, my mother once remarked: "I just don't see the point. Why do we spend all that money fooling around up there when we have so many problems to solve down here?"

While I disagree with her, the woman has a point. We do have major challenges here on Earth - many of them energy related. Technology helped give us the standard of living we enjoy today, and we need breakthroughs now more than ever to maintain our way of life amidst a crowded, resource-limited planet.

I'm not sure how we're going to get there, but we'll certainly need a lot of Thomas Edisons and others pushing the envelope to figure it out....and if they can get some venture funding - that would be good too.