The Color Of Money

At the time, KP had little actual experience with clean technology. It hired three outside consultants to scour Sridhar's proposal, and in 2002 invested unspecified millions in the start-up. KP partner Aileen Lee says that the investment in the company, now named Bloom Energy and still working on its first stationary-fuel-cell product, inspired a shift inside the investment firm. Sridhar evangelized for renewable energy and "made us feel like it was possible to build new companies in the energy industry," she says.

The firm made a few cautious investments over the next couple of years, but the next spark was provided in early 2005 by a new partner--Sun Microsystems cofounder Bill Joy. Industry observers at the time assumed that Joy would focus on traditional software and Internet investments. But Joy was already deeply interested in alternative energy, ironically thanks to an indulgence of the über -wealthy. Since 2004, he has spent tens of millions to build what he describes as the world's most environmentally friendly sailboat: a 190-foot superyacht, to be named Ethereal when it's finished in 2008.

As part of the boat's design process, Joy had been rethinking nearly every aspect of energy generation and efficiency. At KP, Joy developed a taxonomy of 65 investment categories and ranked each red, yellow or green, depending on whether the firm had an investment plan for the sector and was seeing new business plans.

That experience proved invaluable when, in the past year, the perfect storm of political and economic factors converged on the energy sector. The price of oil and gasoline climbed; the oil-drenched wars in the Middle East worsened. Al Gore's movie on global warming changed even the minds of Republicans like Lane, who joined the nonprofit Republicans for Environmental Protection after seeing it. It undoubtedly also reinforced KP's enthusiasm when Vinod Khosla separated from the firm and started investing his own money in ethanol start-ups--drawing plenty of positive press attention as a result. In March of this year, John Doerr showed a San Francisco clean-tech conference scary images of what an underwater Bay Area would look like if the ice caps melted. Two months later, KP made its public commitment to spend a large portion of its latest investment fund on green technology, and held the first of its Greentech Innovation Network conferences.

Since then, new green business plans from hopeful entrepreneurs have swamped the firm. "There's a lot of pent-up innovation in this space. It's like a dam bursting," says Joy, who says he's currently "drowning" in 40 plans waiting for his review. The firm has already invested in a dozen cleantech start-ups. The latest, the UC Berkeley spinoff Amyris Biotechnologies, has plans to bioengineer yeast cells to consume sugar and excrete a biofuel that can be used in cars. Another start-up that has received KP money, the Boston-based GreatPoint Energy, is building a factory in the Midwest to superheat coal and convert it into natural gas--a process called coal gasification. Cofounder Andrew Perlman says the KP partners heard him speak at a green-technology conference and closed a deal in two days.

Investing is only part of KP's green campaign. To change the energy equation, the partners realized they had to help remake the old quilt of energy subsidies, tariffs and taxes. "Unlike the Internet, policy is involved in every part of green tech," Doerr says. At KP's conference in May, participants in a policy working group mobilized around California's pending "AB32" legislation, which proposed reducing greenhouse-gas emissions to 1990 levels by 2020. KP partners organized a lobbying trip to Sacramento and brought along entrepreneurs like Dave Pearce, the founder of the KP solar firm Miasolé. Meanwhile, Ray Lane, a board member of the Shriver-family-sponsored Special Olympics, had the ear of Gov. Arnold Schwarzenegger, who signed AB32 in September. Environmental activists credit KP with an assist on the new law.