In Clean Tech, Venture Capital Looks for Problem-Solvers

By CLAIRE CAIN MILLER

SHELBY CLARK, the founder of a start-up called RelayRides, was honored last week as a rising star in clean technology. But as he took the stage alongside companies creating new kinds of energy, he felt out of place.

RelayRides is a car-sharing start-up. Since when did encouraging people to drive carbon-spewing cars qualify as clean tech?

In Silicon Valley, where venture capital dollars nurture fledgling technology companies, clean tech is getting a makeover. Many investors are shying away from the high risks and costs of creating new forms of energy. Instead, they are doing what they do best — using software to cope with problems, in this case caused by climate change.

RelayRides, which lets car owners rent their vehicles to others, takes cars off the road because people can avoid owning them and the service’s users drive less than other people, Mr. Clark said.

“You can have a major impact on an individual’s carbon footprint by re-creating business models or behaviors without inventing a new energy,” he said.

This strategy has been percolating among some in Silicon Valley for a couple of years. But for many investors, doubts about alternative energy were confirmed last month when Solyndra, which made solar panel arrays and had raised more than $1 billion in venture capital and $528 million in government loans, filed for bankruptcy protection.

“A lot of people see it as a symbol of what they do not like in green investments or government involvement in tech,” said Nathan E. Hultman, director of the environmental policy program at the University of Maryland and a fellow at the Brookings Institution. “If the V.C.’s pull back, then a lot of these companies are going to have to fold, or at least put their plans on hold.

“This is a very familiar stage in the energy industry called the valley of death,” he said.

Green tech investing had been declining even before Solyndra. Venture capitalists invested $891 million in 80 such start-ups in the third quarter, an 11 percent decline from $1 billion in 88 companies in the second quarter, according to the National Venture Capital Association.

Investors, accustomed to financing low-cost Web start-ups, had grown wary of spending the money needed to pay for basic research and build factories to produce energy. Adding to their caution is uncertainty over whether Congress will exact a carbon tax, an increase in natural gas production in the United States and the difficulty of competing with the established energy industry.

But the Solyndra bankruptcy further spooked venture capitalists and particularly the pension funds, endowments and foundations that invest in venture capital, said Mark Heesen, president of the National Venture Capital Association.

Investors, he said, would continue to shift from investing in alternative energy to investing in companies that cope with climate change by, for example, using software to make buildings and cars more efficient.

Venture capitalists are on track to invest $275 million this year in start-ups that make software and other technologies that conserve energy or manage its use, up from $234 million last year and $104 million in 2009.

“Capital-intensive companies that take long cycles to create things, whether they’re solar voltaic cells or giant wind turbines, are not very scalable, so those are really tough businesses to imagine as venture-funded opportunities,” said Bill Maris, managing partner at Google Ventures.

His firm has invested in RelayRides and other start-ups that stretch the definition of clean tech investing. They include the Climate Corporation, for extreme weather insurance; Clean Power Finance, which runs an online marketplace for financing residential solar panels; and Transphorm, which makes tools that reduce power loss when electricity is converted in data centers or industrial motors.

“It’s tech companies that are applying their technology to this industry,” Mr. Maris said. “Those are the kinds of companies we tend to really understand and like.”

At first glance, companies like the Climate Corporation, which insures rural farmers, seem to have nothing to do with either technology or climate change. But David Friedberg, a Google veteran who is the company’s co-founder and chief executive, said its goal was “to help all the world’s business adapt to and understand climate change.”

For farmers, that means analyzing “crazy big data,” Mr. Friedberg said, from weather stations, government data feeds, soil moisture models and Doppler radar images. The Climate Corporation simulates the weather for the next two years and runs a Web site where farmers can enter their location and crop, buy insurance coverage and automatically receive payments for bad weather.

Soybean farmers in the Dakotas were recently paid for delayed planting because of an unusually rainy spring, and wheat farmers in Oklahoma and Texas were covered for a intense drought.

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Ben Horowitz on how to be an uber investor and breed technical CEOs

By Dean Takahashi

Ben Horowitz, a co-founder of the venture capital firm Andreessen Horowitz, says he and his famous partner Marc Andreessen hope to carve out a different path in creating a new kind of venture capital firm.

They hope to capitalize on their fame going back to the days of the founding of Netscape, their startup successes, and their love for technical CEOs to beat other venture capital firms to the best new startups. Horowitz also said he hoped to be more transparent about his firm’s approach by telling entrepreneurs what his company is doing.

Horowitz reflected on what it was like to start Netscape, which went public in 1994, just 15 months after its founding by Andreessen. He said that kind of accelerated growth, which is not so uncommon anymore, is tough on founders who have to learn how to run a big operation under the public limelight. Back in the old days, it was common for venture capital firms to bring in professional CEOs to run a company after the founders got it off the ground.

But based on their experience, Andreessen and Horowitz say they don’t want to push founders out of companies.

“Today it would be nuts to replace guys like Mark Zuckerberg (founder of Facebook), Dennis Crowley (founder of Foursquare), and Mark Pincus (founder of Zynga),” Horowitz said in a conversation with journalist John Heileman at the Web 2.0 Summit in San Francisco today.

“We wanted to design a venture firm to help technical founders become CEOs rather than replace them,” Horowitz said.

Founders can make good CEOs because they know every decision the company has made, they understand customer feedback, and have the “moral authority to make decisions,” Horowitz said.

If there are mistakes to learn from, the founding CEOs are the best ones to recognize them, Horowitz said. The founding CEOs also have a clear commitment for the long-term, not the quarterly view.

“That is hard for a professional CEO to do, and having the moral authority can be very powerful,” he said.

Founders aren’t perfect, but Horowitz felt that venture capitalists developed a bias against founders as CEOs. Offering advice to founders about how to avoid pitfalls as CEOs is something that helps distinguish Andreessen Horowitz, according to Horowitz.

“Entrepreneurs come to us because, if you take money from us, the engineers you hire have heard of the investor,” Horowitz said. “That makes them more comfortable about taking a job.”

That matters these days when the ability hire good engineers is becoming harder in places like Silicon Valley, were certain kinds of talent are in short supply, despite the recession.

As for major trends, the “giant trend” is the shift from early web-based businesses, or Web 2.0, to a new kind of business. These businesses use cloud computing in the back-end data centers and mobile computing on the front-end.

“It’s the biggest change since we moved from mainframe computers to PCs,” Horowitz said. “It is changing the way that networks are being built.”

Heileman got Horowitz to make comments about some of the fund’s investments. Horowitz said he felt like Facebook is one of the best-run technologies companies. He said Groupon is the fastest-growing company in the history of business. He said Instagram is very innovative. Rockmelt has a great team with a great idea. Twitter is changing the world. He loves Zynga.

As for Steve Jobs, Horowitz said, “It’s spectacular what he did for the world and his life. People have compared him to Thomas Edison. That’s right in terms of the importance of the impact he has had on the world.”

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Venture Capital in Reverse: The Business Idea First, Then the Entrepreneur

A Kansas City firm turns the traditional VC funding model on its head and captures new opportunities.

By Gwen Moran

The typical venture capital story goes something like this: An entrepreneur gets an idea and plots out how to turn it into a business. Then he or she goes searching forventure capitalists to fork over dough to fund it.

But Steven St. Peter, managing director of Boston-based venture capital firm MPM Capital, prefers to flip that story around. He uses MPM’s funding and resources to locate ideas in the marketplace, then goes out and finds the best people to build the company.

“It’s not a formal ‘they work for us and they pursue ideas,'” St. Peter says. “It’s a collaboration.” And it’s working. MPM’s model has catalyzed three Boston-area pharmaceutical companies: Idenix Pharmaceuticals, Rhythm Pharmaceuticals and Verastem.

Now MPM has turned its attention to animal health with Kansas City, Kan.-based Aratana Therapeutics, which launched in December 2010. St. Peter recruited Dr. Linda Rhodes, a veterinarian who founded and built animal health research company AlcheraBio and sold it to Argenta, a New Zealand-based pharmaceutical research company; and Dr. David Rosen, also a veterinarian, who was previously an entrepreneur-in-residence at MPM and executive at Pfizer.

Rhodes and Rosen are developing therapies for pain relief and weight loss prevention in dogs. “People are treating companion animals as family members and are more willing than ever before to spend dollars on medical care for pets,” Rhodes says. “If you can bring something that’s unique to an unmet need or an underserved need in the animal health industry, it’s very likely to represent a significant market opportunity.”

MPM also lines up funding–for Aratana, $20 million of its own cash plus investments from firms like Avalon Ventures, Cultivian Ventures and the Kansas Bioscience Authority. St. Peter says this model, which focuses on the development of just one or two products, is highly effective. While development of a new animal health therapy from concept may traditionally take 10 to 12 years, Rhodes estimates that Aratana will have its first drug to market in about four to five years.

“I’m a veterinarian. I’m a pet owner. Our animals deserve this kind of innovative medicine,” she says. “It’s time to take those biotech and chemical breakthroughs that have happened on the human side and translate them to the animal health side.”

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Digg Founder Cashes Out of Twitter

Kevin Rose, found of Digg.com, has decided to pull out 20% of his shares in Twitter in the most recent funding round. However, Rose is still quoted as saying that he, “still believed in the company.” Rose goes on to say that he simply needed the funds to invest in other investment opportunities and companies he wishes to invest in and work with. Clearly, this should not be taken as any kind of sign of Twitter faltering because Twitter is currently valued at $3.7 billion pulling in over $200 million a year. Twitter will have no trouble maintaining a positive image to its investors.

By Matthew Lynley

Digg founder Kevin Rose, an investor in Twitter, Zynga, Ngmoco and a later investor in Facebook, has cashed out 20 percent of his shares in Twitter.

Twitter’s most recent funding round gave the company’s shareholders an option to sell 20 percent or 100 percent of their shares if they wanted to cash out. Rose did not specify which option he took, but he said he sold shares in Twitter and “still believed in the company.”

Rose is also an investor in former TechCrunch editor Michael Arrington’s new early-stage investment fund, the $20 million CrunchFund. He is an investor in SV Angel and Greylock Partners as well, and his angel investing activities have slowed down while he starts working on his own startup, Milk.

“When you’re not actively doing angel stuff and you’re running a company, funds just make it a lot easier,” Rose said. “When you’re doing the active angel stuff you meet with companies back to back to back to back.”

Twitter confirmed that it is raising a large funding round from Russia’s DST, the investment company that has backed Facebook, Groupon and Zynga. The round is rumored to be around $800 million across a two-part funding round, which would value the company at nearly $8 billion.

Twitter has more than 300 million registered users who post more than 200 million tweets a day. Valued at $3.7 billion after its most recent round of funding in December, 2010, Twitter makes $200 million each year, according to analysts cited in the report.

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