of science experiments. This stance is what so sharply differentiates venture capital from actual R&D. For R&D is all about the experiment.13
From Genetech, Apple Computer, and Adobe to Google, eBay, YouTube, and Facebook—all these are the progeny of this Silicon Valley ecosystem, along with many more whose names may not be so well known but whose technologies do much to make the modern world work.
“CAREER SUICIDE”
But for many years, energy was of little interest to venture capital. That was for Bell Labs and other large-scale laboratories in established companies, national labs, research institutes, and universities. But definitely not for venture capital.
One of the few exceptions among the venture capitalists was Nancy Floyd. She set out to start what became one of the very first VC firms focused on energy. The basic reason, she explained, was because of “my somewhat disjointed career.” She had been an electric-power regulator in Vermont and then an early wind developer in California, climbing up into the Altamont Pass wearing rattlesnake guards. After the breakup of the AT&T phone monopoly in the early 1980s, she helped start a telecommunications company that was later sold to IBM. “I had seen the role that technology could play in disrupting a previously regulated industry,” she recalled.
In the 1990s the deregulation of the electric power industry seemed to offer similar opportunities, and in 1994 she decided to set up a venture capital firm, Nth Power, to exploit those new opportunities. The world was definitely not waiting, either for her or for Nth Power. She spent the next three years on the road, visiting hundreds of investors around the world—as it turned out, highly uninterested investors. With her funds running low, Floyd started staying in $39-a-night hotels, which wasn’t easy for her. For, as she put it, “I’m not a $39-a-night-type gal.”
But she hung on with what she later called the “common trait of all successful entrepreneurs”—tenacity—and by 1997 she had raised her first fund from just a handful of investors. Things did not get much easier. The first few years were “like pushing a boulder up the hill.”14
Another early energy investor was Ira Ehrenpreis, a partner at Technology Partners. Ehrenpreis made his first investment in an energy technology company in the late 1990s. “I spent most of my time in the IT world, governed by Moore’s Law, where every 18 months products are leapfrogged by the next generation,” said Ehrenpreis. “Then, as chairman of this energy company, I’d interface with the utilities, and learned that the lens of innovation that they looked through was decades.”
Ehrenpreis also felt pretty lonely in the field. “My venture brethren thought I’d lost my sense of reason,” he recalled. “Closer friends worried that I was committing career suicide.”15
THE $6 TRILLION OPPORTUNITY
But now Nancy Floyd and Ira Ehrenpreis are seen as pioneers. For around 2003 and 2004, the VC community discovered energy and cleantech. Rising energy prices was one reason. But there were others. “It was a combination of energy independence for the United States, the priority to address global warming, and the fact that we had technology that we just didn’t have in 1979,” is how Ray Lane, a partner at Kleiner Perkins, explained his firm’s move into the industry. The sheer scale of the opportunity was very compelling. In its analysis, Kleiner Perkins estimated that the total annual information technology market was $1 trillion a year, while that for energy was $6 trillion.
The entry of venture capital into cleantech has gone from the trickle to the veritable flood. Investment in the U.S. cleantech industry went from $286 million in 2001 to $3.7 billion in 2010—a rise of more than ten times. In 2010 cleantech represented 17 percent of total VC investment in the United States.16
“MIT IS DOING ENERGY”
Robert Metcalfe is one the legends of the information technology business. He invented the Ethernet, which makes possible the LANs—local area networks—that link computers in offices and homes. He was also on the board of the company that developed PowerPoint, the inescapable tool of most presentations. He has been awarded the U.S. National Medal of Technology. An MIT graduate, he had returned from Silicon Valley to join Polaris, a Boston venture capital firm.
On May 6, 2005, Metcalfe attended the inauguration of Susan Hockfield, a neurobiologist, as the sixteenth president of MIT. At the ceremony, held in Killian Hall, which looks out toward the Charles River, he heard Hockfield declare that it was the university’s “institutional responsibility” to address energy issues across every department. To a venture capitalist