Khosla: still betting big on cleantech

Vinod Khosla is not short of opinions on the subject of clean technology investment. On the recent collapse of US solar panel start-up Solyndra, the billionaire venture capitalist told The Wall Street Journal: "Just because Solyndra failed doesn't make it bad." And in November's Atlantic magazine, he had this to say about EVs: "Electric cars are coal-powered cars... And (they require a) very expensive battery. ...Unless your technology can achieve unsubsidised competitiveness against the market and fossil fuels, you're just a toy."

But if you really want to know what Khosla, a longtime champion of cleantech, thinks of the current state of the market, the announcement last week of his firm's $1.05 billion Khosler Ventures IV fund – with as much as 65 per cent of the money said to be earmarked for renewables, energy-efficiency technology and LED lighting products – speaks volumes.

In closing the fund, which ranks as one of the biggest new venture funds this year, Khosla Ventures is bucking two prevailing trends in the VC industry, says the WSJ. The first is an anaemic fund-raising environment: according to VentureSource, VC funding of cleantech dropped about 44 per cent in the second quarter to $1.1 billion, down from $1.9 billion a year earlier. The second is a shift by many Silicon Valley firms to pursuing deals in larger and more mature (read less risky) companies.

But neither the drop in VC funding for cleantech, nor the much analysed and agonised-over failure of Solyndra – one of the highest-profile VC-backed (and government loan-backed) US cleantech companies, which filed for bankruptcy protection in September – seem to have shaken Khosla's commitment to the development of emerging clean technology. Indeed, far from seeing the Solyndra story as emblematic of "an increasingly large disaster" – which is how entrepreneur and PayPal cofounder Peter Thiel recently described the US cleantech sector – Kohsler sees it as a natural part of the business. In fact, he says, when supporting early stage companies working on unproven technology, he expects some of them to fail.

“When you're trying new things, some things just don't work,” Khosla told BusinessWeek last week. “Solyndra wasn't cost competitive with other companies in the Valley; there are other companies that are doing fine.” But when companies do resonate with investors, the marketplace, and consumers, Khosla expects big returns. “We don't mind failing, but do care that the impact be material if we do succeed; and we believe that our willingness to fail gives us an ability to succeed," he told the San Francisco Business Times. "We believe in helping entrepreneurs build companies with high impact and high option value that are not subject to traditional financial metrics.”

“We do a lot of very high risk, early investments,” Khosla told BusinessWeek. “We'll invest a million or two and we might fail at it, but if it works then we'll put 10, 20, 30 million in it. ... Our success rate is not lower than anybody else I know, even though it seems like we're taking larger risks," he said. “Instead of just investing, we're spending a fair amount of time helping these entrepreneurs in how to build their businesses. That takes a high-risk project and turns it into a lower-risk project.”

And Khosla says his firm will continue to make early-stage investments in clean technology companies. After all, it's an approach that, so far, does seem to have paid some decent dividends. Khosla Ventures says its cleantech portfolio has generated about $1 billion in profits. This includes gains from the recent IPOs of biofuels companies Amyris, Gevo, and Kior – WSJ reports that Gevo and KiOR both priced their IPOs at $15 a share. KiOR ended last Thursday at $15.70 while Gevo was at $7.85.

Khosla has also backed at least two companies that have been bought out by larger entities. One of these was solar energy developer Ausra – the Silicon Valley start-up whose Australian-grown solar thermal technology (conceived by David Mills and developed by Mills and Graham Morrison at Sydney University) was "plucked from obscurity" in 2006 by US-based VCs including Khosler Ventures, which backed the start-up and its technology to the tune of $25 million. Ausra was bought by French power giant Areva in 2010.

So where is Khosla looking to invest the company's new funds? BusinessWeek reports he is eyeing companies that are striving for scientific breakthroughs, like Soraa, which his company has backed since 2007. Soraa has “fundamentally changed the materials on which LEDs are built,” Khosla said, adding that that means there's “more science risk than just a little bit of engineering.”

And he is also, reportedly, rather keen on thermoelectric technology, which works to generate power from waste heat. “Thermoelectrics, if they have a large enough breakthrough, which we hope for, could revolutionise air conditioning, cooling and refrigeration,” he said, adding that hey may also revolutionise power generation to become “both a demand-side and a supply-side technology.”

Furthermore, as Khosla told The Atlantic, his firm is also working on developing "real change" (which is defined by Khosla as change that meets the “Chindia price”) in the green auto sector. "We have five projects trying to change the cost structure of batteries. If we can develop a battery that costs $2,000 instead of $20,000, that car meets the Chindia price. We also have a company called Ecomotors. Our approach is: What if an internal-combustion engine could be twice as efficient as today's engine for the same price? Nobody else is trying to reinvent the engine. We are. I'm envisioning a future with 75 per cent less electricity use for the same light or air conditioning, and 75 per cent less oil consumption for the same car."