July 14, 2008 2 Comments
I just read a nice piece in Fortune, Kleiner Bets the Farm. The article describes Kleiner’s big move into alternative energy. And this move comes at the expense of investments in new Web 2.0 companies.
The firm is one of the trend setters in Silicon Valley, with a long string of massively successful investments over several decades. And Silicon Valley VC firms always invest in trends, rather than companies.
Which is what makes Kleiner Perkins’ new investment focus so interesting. And a good direction.
$4.00 Per Gallon = Better Green Tech ROI
Now that filling up your car requires $50, $60, $70 or more, consumers are much more interested in changing energy habits. And businesses are going to be whacked hard as well, with the costs inevitably costing us more money everywhere. Yeah, we’re ready for some changes.
I’m no expert in the field, but a common problem with generating alternative sources of energy is the high cost of production. But now with oil prices going through the roof, those alternative sources of energy suddenly look better.
Here’s one example: hydrogen fuel-powered cars. Hydrogen is a clean, abundant source of energy. But it’s not yet commercially viable. In 2003, gubernatorial candidate Arnold Schwarzenegger proposed a plan to foster the production and adoption of hydrogen powered cars. President Bush echoed this idea in a 2006 Earth Day speech:
It (hydrogen) has the potential — a vast potential to dramatically cut our dependence on foreign oil.
Good news, right? Well, the reality has not yet met the aspirations. First, there’s the cost of hydrogen fuel. Research Capital analyst Jon Hykawy had this to say about hydrogen-powered cars:
In my view, the hydrogen car was never alive. The problem was never could you build a fuel cell that would consume hydrogen, produce electricity, and fit in a car. The problem was always, can you make hydrogen fuel at a price point that makes any sense to anybody. And the answer to that to date has been no.
And this year, Govern Schwarzenegger had to retreat from his ambitious hydrogen and electric car goals.
Which leaves us with $4 gas.
At some point, oil prices will cross over the economic threshold for other energy sources to become economically viable. Waiting until then will be bad, because commercial development of these alternatives will take several years. We need to get our collective asses moving to drop our dependence on oil. We need new investment dollars flowing into that sector now.
Web 2.0: Feature or Business?
We’re several years deep into the Web 2.0 revolution. Allen Stern at CenterNetworks asked How Many Web 2.0 Services Have Gone Mainstream? The answer? Not many. How many have had an IPO?
That’s not to say that Web 2.0 is going away. Anything but. What does seem to be happening is that Web 2.0 is being integrated into the traditional big software and Internet players. I did product marketing for BEA Systems’ Enterprise 2.0 apps. Not some small company, but a big name Web company adding Web 2.0 to its existing portal platform.
There will be Web 2.0 businesses that succeed. Most seem to be acquisition bait. Some will break through in a public offering.
The low cost of entry to create Web 2.0 businesses has democratized company creation. If you want to be snarky, you might say that just means a bunch of crappy apps have been created. This is true. But from a capitalist point of view, all that creativity is healthy because some good companies come out of all that.
Web 2.0 companies have become easier to create, and funding has generally not been a problem.
As Kleiner Perkins Goes, So Goes Venture Capital?
Going back to Tom Foremsky’s quote, is Kleiner Perkins the first of what will be several firms to change focus to alternative energy? My impression is that alternative energy is at the stage of two guys hacking together a computer in their garage. Some interesting experimentation, but clearly there’s a need to ramp things up dramatically, with attention, experimentation and financing.
Go Kleiner Perkins. And I hope other VC firms are following suit. And don’t worry. Web 2.0 will be fine.
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