Thursday, July 22, 2010

Venture capitalists appear to wield outsized influence in federal energy funding.




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SAN FRANCISCO -- On average, the U.S. federal government's investment in energy research and development is paltry--about $5 billion a year, compared to the $30 billion that goes to the National Institutes of Health, according to figures from the newly launched American Energy Innovation Council.
But the past couple of years haven't been average when it comes to federal energy funding. The Obama administration has used the stimulus funds to pump between $50 billion and $80 billion into green tech initiatives (depending on what you define as green tech) since 2009.
I applaud this funding and agree with the American Energy Innovation Council--which countsBill Gates, GE CEO Jeff Immelt, and Silicon Valley venture capitalist John Doerr as members. The Council is calling for a $16 billion federal investment in energy innovation every year. Boosting federal funding will be crucial to deliver innovation around energy technology.
One thing I have noticed from the sudden massive boost in green tech stimulus funding is just how much influence green tech venture capitalists have quietly developed. VCs have been at the forefront of shaping federal energy investing policy, including weighing in on which sectors should get funding and perhaps even which companies should receive federal support.
Take Kleiner Perkins Caulfield & Byers managing partner John Doerr. He's the man who seeded Google ( GOOG - news -people ) and Amazon.com ( AMZN - news people ), and kicked off the green-tech investing boom in 2007 when hereportedly cried during a climate change themed TED talk. Doerr has morphed into one of the most influential political movers in Silicon Valley and sits on President Obama'sEconomic Recovery Advisory Board. He and his partners managed to convince former Vice President Al Gore to join Kleiner Perkins as a partner in late 2007 and before that brought on former Secretary of State Colin Powell (who now works with oh-so-buzzy fuel cell firm Bloom Energy ).
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Kleiner, which is investing hundreds of millions of dollars in green tech startups, has benefited from some notable government support. The most significant is a $529 million federal loan to its portfolio company electric car maker Fisker Automotive. The Obama administration also set aside some $4 billion in stimulus fundsfor smart grid technology, which gave a nice boost to its investment in smart grid network builder Silver Spring Networks.

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Last year the Obama administration named former venture capitalist Jonathan Silver to head the Department of Energy's highly competitive loan guarantee program and green car loan program. Silver is in charge of the programs' application process, analysis and negotiation as well as staffing. According to a release from the DOE, he also manages "the full range of the Department's alternative energy investments."
Over the past year over a third of the DOE's loan guarantee commitments (roughly 5 out of 12) have gone toward venture-backed startups, including solar thermal companyBrightSource, solar panel maker Solyndra, efficient window developer SAGE Electrochromics, wind developer Nordic Windpower and thin film solar company Abound Solar. Obama commonly holds public speeches at these types of venture-backed and government-supported clean energy startups andstumped at Solyndra in May.
It shouldn't come as a surprise that the Obama administration has turned to VCs as guides for how to invest stimulus funds in clean energy. More than anyone else, the venture capitalists in Silicon Valley have been leading the investments in clean power and energy efficiency in recent years. In the third quarter of 2009 when the recession hit hard, green tech startups became the top venture investment sector (ahead of IT and biotech).

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