By Annys Shin
Washington Post Staff Writer
Tuesday, April 18, 2006
Bill Gates, John Doerr and Steve Case believed in the Internet long before Wall Street did. Now, they're betting on the next great "disruptive" technology: alternative fuels and other environmentally friendly products, but this time other investors aren't far behind.
Last year, AOL LLC founder Case launched Revolution LLC, which has invested in companies such as car-sharing service Flexcar that promote sustainable lifestyles. In November, Microsoft Inc. founder Gates committed $84 million to a California company to finance the construction of five ethanol bio-refineries. And last month, Doerr, the venture capitalist who invested early in Google Inc. and Amazon.com Inc., set up a $100 million fund to invest in "green technology."
To be sure, the investments don't make up a large proportion of their portfolios, and even with oil at $70 a barrel, alternative energy sources are still at the margins of the market. Gates, one of the world's richest men, has committed far more to developing low-cost drugs for impoverished countries. And while Case has committed around $500 million of his own money to Revolution, some of that is going to fund health care and spa investments. But just as two decades ago they saw the Internet as a way to make money and change the world, they now think green technology is poised to make a difference of its own.
"Greentech could be the largest economic opportunity of the 21st century," Doerr said in a February press release announcing that Kleiner Perkins Caufield & Byers, the investment fund that helped underwrite many prominent tech start-ups, would raise $100 million for the green technology fund.
In addition to Case, Gates and Doerr, Sun Microsystems Inc. chief executive Scott McNealy last fall played a prominent role in a Business Roundtable task force on sustainable growth strategies.
Sun founder Vinod Khosla has started his own fund to invest in clean tech companies. And Microsoft co-founder Paul Allen is financing a Seattle company that is trying to turn canola oil into diesel fuel.
"The green, sustainability movement is going mainstream," Case told The Washington Post last year, and "we want to ride that wave."
"Clean technology" in particular is a small but growing area of investment that has attracted tech billionaires. Before 1999, those businesses attracted less than 1 percent of venture capital investment. In the past two years, that has risen to between 5 and 8 percent, said Diana Propper de Callejon, general partner at Expansion Capital Partners LLC, which manages money for wealthy families.
By 2009, the Cleantech Venture Network estimates that clean technology companies will need about $3.4 billion in capital investment, said Craig Cuddeback, the network's senior vice president.
In some ways, having made their fortunes, Internet pioneers are just like other wealthy individuals looking to park their money somewhere. Unlike the early days of the dot.com boom, these entrepreneurs already have company in clean tech investing, including pension funds, investment adviser Piper Jaffray, country singer Willie Nelson, and Richard Branson, founder of the Virgin family of businesses.
High oil prices alone are not the reason for the spike in interest. Low corn prices and technological advances have made ethanol a potentially cost-effective alternative to fossil fuels, said Elif Acar, an energy analyst with Standard & Poor's. An energy bill that passed Congress last year has also accelerated the adoption of ethanol by forcing oil companies to eliminate a popular gasoline additive, and it mandates that more biofuel be mixed with gasoline.
There are some parallels between clean tech and the early days of the Internet, Propper de Callejon said. It is starting from a relatively small base, driven by technological innovation and underinvested relative to the size of the potential market.
In the case of Sun Microsystems, the company became interested in energy conservation because of the increasing electricity demands of more powerful computers. Sun Microsystems began to overhaul its servers to use less power after customers said energy costs were rising, said company spokeswoman Stephanie Hess.
Case, who has invested in a diverse range of businesses that promote sustainable lifestyles, is part of a larger trend in socially responsible investing, said David Berge, president of Underdog Ventures LLC. Until recently, so-called socially conscious investors have emphasized where they don't want their money to go, such as tobacco or companies doing business with South Africa during apartheid.
"Today, more people who have the ability to make choices are leaning toward affirmative streams," Berge said. Clients come to him and ask, "What could you do for us for environmental investing?"
The impact of tech dollars is being felt already. Until recently, the ethanol industry has been the province of large agribusinesses and farmer cooperatives. Today, Neil Koehler, who relied on one angel investor to finance his first ethanol company, took his latest venture public and received financing from Gates.
Gates's involvement in Pacific Ethanol "has helped propel our public position," Koehler said.