The Color Of Money

Silicon valley venture capitalists are typically reluctant to invest in companies more than an hour's drive from their offices. Far-flung start-ups are simply too difficult to manage. So it was curious, a few weeks ago, to find John Doerr, the most famous partner at the Valley's most storied venture capital firm, Kleiner Perkins Caufield & Byers, scouting for investment opportunities all the way in Brazil. In a two-day, 10-meeting whirlwind trip, Doerr, his KP partner Ellen Pao, and Doerr's friend, author Thomas Friedman, barnstormed the country's ethanol industry, which produces half of Brazil's automobile fuel from sugar cane. The trio met with energy entrepreneurs and took a helicopter to the world's second largest ethanol mill, where 100,000 tons

of raw sugar is converted into 21 million gallons of ethanol each year. "You don't appreciate what Brazil has achieved until you've been there and see the endless fields of sugar receding over the horizon," Doerr says.

Something unusual is happening at Kleiner Perkins. Earlier this year the firm--known for making enormously profitable bets on the likes of Google, Amazon, Netscape and Sun Microsystems--pledged to devote $200 million of its new $600 million investment fund to green technologies like solar panels and biofuel. It recently initiated a biannual conference for energy entrepreneurs and experts, and began lobbying for state and federal legislation that would lower greenhouse-gas emissions and raise taxes on oil drilling to fund alternative-energy research. Doerr calls the world's transition to clean energy "the biggest business transformation of the decade and maybe even the first half of the century," which sounds like predictable hype from the man who said the same thing about the Internet even as the dot-com economy crashed.

But this time, Doerr's characteristic hyperbole may be good for the country and the planet. Though KP wasn't the first to embrace the green religion, it now leads an enormous wave of financial and political capital being spent on breaking our dangerous reliance on fossil fuels. U.S. investors are on track to pour $2.5 billion into green-tech start-ups this year, up from $1 billion in 2002, according to the Cleantech Venture Network. None of KP's green companies has produced actual products or revenue yet, so it's too soon to tell whether this is merely another frothy Silicon Valley bubble. But KP's decision to go green, after five years of gradually dipping its toes in the sector, signals even bigger industrywide bets to come. After all, where mighty KP goes, other investors usually follow. KP's 1994 investment in Netscape, for example, helped spark the Internet revolution; its backing of Amazon in 1996 kick-started e-commerce. "Their decision to move forward aggressively on green-tech causes others who even a few years ago ignored this space to finally pay attention," says Dan Reicher, president of New Energy Capital in Vermont.

The story of how Kleiner Perkins Caufield & Byers went green begins with inventor Dean Kamen, whose overhyped, underperforming start-up, Segway, was financially backed by KP in 2000. As the dot-com bust was swamping many of KP's Internet investments, Kamen's green-themed pitch for the Segway personal transporter deeply affected many of the partners. In speeches that year, Doerr declared that 300 emerging Asian cities with populations of more than 10 million people would surely overwhelm the planet's natural resources unless new sources of clean water, power and transportation were developed. Former Oracle president Ray Lane, a Republican, joined the firm that year and was surprised that Kamen's politics had so clearly swayed his new partners. "I didn't realize that I had joined a firm of tree-huggers," he says.

It took India-born mechanical engineer KR Sridhar to convert that general interest into KP's first real financial commitment. In the late '90s, Sridhar was a visiting scientist at the NASA Ames Research Center in Silicon Valley. His microwave-oven-size electrolyzer experiment, set to launch on the 2003 Mars Lander mission, was designed to convert solar-generated electricity into air, water and methane, and to grow an actual living plant inside an inflatable tent on the Martian surface. After NASA lost two Mars missions in the late '90s, the space agency scrubbed Sridhar's project. Pondering his next move, he realized that he could build a business by reversing his electrolyzer technology into a fuel cell--in other words, using water, oxygen and a hydrogen source such as natural gas to cleanly generate electricity. Henry McDonald, then the director of Ames, introduced Sridhar to KP partner Vinod Khosla.