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Gore, Joy See Green Economy Powered by Silicon Valley


By Ted Greenwald
November 12, 2007


Al Gore testifies to the U.S. Senate Environment and Public Works Committee on
Capitol Hill in Washington, D.C., on Oct. 12.

Photo: Stephan Zaklin/epa/Corbis Gore, Doerr & Joy is not a folk rock supergroup
but an investment power trio with a common goal: To use market forces to stop
global warming.

Former vice president Al Gore has become a partner in Silicon Valley's top
venture capital firm, Kleiner, Perkins, Caulfield and Byers.

In return, John Doerr -- KPCB founder and early investor in Amazon, Google and
Netscape -- has joined the advisory board of Gore's three-year-old green
investment firm, Generation.

And Bill Joy, the boy genius behind Sun Microsystems, Java and the latest
generation of Unix operating systems, is a KPCB partner who established his cred
as a techno activist by advocating limits on research in potentially dangerous
technologies like genetic engineering.

Together, they're inviting all comers to submit eco-friendly business plans in
need of capital.

The climate situation is so dire, and the investment opportunity so enticing,
that the principals are determined to leave no possible solution unexplored.
Doerr, who confessed his fear of climate change in an emotional presentation at
last year's TED (technology, entertainment, design) conference, predicts that
$200 million in KPCB capital will target global warming within a year, in
addition to the $270 million currently allocated to environmental issues.

The alliance with Generation will help him figure out where to put the new
money. The alt-fuels market is estimated to be worth $1 trillion, the global
energy industry worth six times as much. All of which makes the new Green
Revolution the new internet on Sand Hill Road.

"It's going to be fun and wildly profitable, and really good for the planet. How
can you not be excited about this?" says Joy.

Well, a flood of dodgy proposals soon to arrive at KPCB-Generation central might
give the VCs pause.

Wired talked with Gore, Joy, Doerr and Generation co-founder and managing
partner David Blood during a Monday conference call.

Al Gore: If I could start up with a brief opening comment. We are announcing an
international alliance between Generation Investment Management and Kleiner,
Perkins, Caulfield and Byers to accelerate solutions to the climate crisis.

These two firms, in alliance, cover the full spectrum of the investment
marketplace, and weíre asking entrepreneurs, innovators, investors and
technologists around the world to send us their ideas, business plans and new
technologies.

We have geared up to give a full and fair hearing to those ideas. Though we
will, no doubt, make mistakes, we will pledge our best efforts to give a full
hearing -- including to ideas and technologies that perhaps have been given
short shrift in the past -- and we look forward to seeing many that have not yet
seen the light of day.

We believe that Sir Nicholas Stern is right when he says, along with others,
that there is an investment gap of up to 1 percent of world GDP over the next
several decades that needs to be closed if weíre going to succeed in quickly
developing a low-carbon economy. Weíre very excited to have this chance to work
together and bring these two world-class teams together.

Bill Joy: Itís widely recognized that weíre going to need to invest more, but we
also need to buy things we can afford.

If we look at the technologies out there today, thereís a lot of things that can
be profitably deployed. People can get a lot more efficient. But the scale of
the problem is very large. Weíre going to need new technologies to fully solve
the problem.

Investing in new technologies and more rapid deployment of technologies that are
farther along and sharing intelligence about the best way to allocate capital
will yield not only good investment returns but also better results for the
planet. Thatís why weíre so excited to be working with Generation and Al Gore.
Wired News: So youíre inviting all comers to pitch you?

Gore: The tone of your voice conveys some question about the wisdom of this invitation.

WN: It does make me wonder how youíll cope with the inevitable flood of Ė- how
can I say it politely? Un-actionable ideas.

Gore: Between Generation and Kleiner Perkins, weíre already seeing 3,000 plans
per year. So we have already developed the capacity for this review and we have
scaled it up in anticipation of increased flow. And, of course, we recognize
that there are a lot of proposals that should never see the light of day. But we
also recognize that there are a lot of great ideas and technologies that have
not been given adequate consideration and arenít (given adequate consideration)
because of the heavy subsidies for high-carbon technologies that are enormously
profitable for incumbent enterprises. As the world shifts away from a
high-carbon economy, we need to do a better job, all of us, in recognizing the
new opportunities.

David Blood: The challenge that Bill Joy just outlined is an enormous challenge.
Weíre in the process of moving from the carbon-based economy to something
different. It would be probable that that would undergo a change over the course
of decades.

Our guess is -- given the challenges associated with climate change -- which
transition is going to need to occur much more quickly. Over a 10-year period,
possibly a five-year period.

So the need for entrepreneurship and creativity in ways we canít even fathom,
not only as investors or business people but across civil society, is so great
that, in some ways, the call seems to be, weíre asking for a lot.
But itís also symbolic, to say we need to take a different approach here. We
need to have a total change of mindset. We need creativity. We need existing
businesses to change -- entrepreneurs, capital markets professionals and public policy.

WN: Itís laudable and intriguing to open the doors wide, but my immediate sense
is that, given the stature of the participants, you probably already have your
fingers on the pulses of the most significant developments available and
probably already have personal connections with many of the people.

Gore: Hereís what I would encourage you to add to your way of thinking. Even
though we do, in fact, have some good ideas about who we think some of the
likely winners will be, the scale of this is larger than any challenge our
global civilization has ever confronted.

This is going to be larger than the industrial revolution, in a shorter period
of time. The initiatives involved will be the equivalent of the Manhattan
Project, the Apollo Program, and the Marshall Plan combined and scaled globally.

There are a lot of people who are going to be actively involved in trying to
catalyze this transition. We want to do our part and bring the skills,
discipline and experience of these two world-class teams together to bring to
bear on this challenge and to do our part.

Joy: If you saw the TV show, Connections, you saw how breakthroughs come after a
series of small steps. Weíve been looking actively for years, figuring out what
we can do that would make a real difference and addressing energy and
renewability of the way we do things. And, in many cases, we have a whole
picture -- except there may be one or two pieces missing.

So if someone has something they think is new and could be a piece, that could
be interesting because our preparation yields us the opportunity to take that
small piece and maybe make it the final piece of the puzzle.

Thatís across a wide range of mechanical engineering disciplines, chemistry,
physics, biology, all sorts of technical areas where a higher price for carbon,
higher price for oil makes things more interesting than they were when those
prices were artificially depressed.

Are these scenarios publicly available, so I can see what piece you feel is
missing and put my mind to filling it?

Joy: That would be a job and a half in itself. Weíre talking really arcane stuff
here. For example, if you want to capture CO2, the material you capture it with
has to be recycled. Itís not the capture thatís hard, itís the recycling of the
material that captures, cost-effectively.

Then, of course you have to do something with the CO2 once you capture it.
Thatís another piece. So there are pieces missing. Letís find them.
WN: Do you have a specific set of criteria that youíll be judging proposals on?
Joy: We get business plans, we look at the team, technology, markets -- things
have to go to scale to make a difference, so weíre looking for ideas that can
make a big difference.

Gore: One of the criteria will be how big a contribution to solving the climate
crisis will the technology represent.

Blood: I think itís also important to put this into a somewhat broader context.
There are multiple industries and businesses that will be part of the solution
to climate change.

Itís not just green technology. It ranges from water to markets to the
carbohydrate economy to energy efficiency. Itís a broad series of industries and
businesses.

Second, itís across all stages of companiesí development. Weíre talking, at this
moment, about early-stage businesses, but thatís just part of the solution. Part
of the challenge is to work with later-stage businesses as well as larger
businesses.

Some of the largest companies in the world are the largest participants in these
markets. So itís not just the small startup that youíre familiar with, that
Kleiner is so great with. Itís that among other types of businesses.

Joy: At the moment, in my funnel, personally, I have about 100 ventures. They
start from ďsomebody has an ideaĒ or ďI saw this patent,Ē or something, and at
the far end are the things we work on with Generation.

Thereís probably 10 such ventures. We looked at one just a couple of weeks ago.
We went into diligence on it. We didnít end up making the investment.
One of the partners here is seeing one of those a week. So if the flow picks up
here, weíre going to be pretty busy. You do that for a while and you can pick
out the ones that are going to matter pretty quickly.

Ten times the volume isnít 10 times the work. You still have to be polite, that
takes a little time, get a good process for being polite to people for sending
us their stuff, but it doesnít take anywhere near 10 times the work to process
10 times more once we know areas -Ė and we do. Thatís the strength of these two
firms. We go all the way from the earliest ideas to the public markets.

WN: The approach of investing in technologies that you think will solve an
environmental problem has been around for some time. But I do wonder about the
dual goal of doing well and doing good and whether you can actually maximize
your returns and your environmental gains at the same time. How has that been
going?

Blood: The biggest challenge, when people ask this question, ďis it possible to
make money and do well by society or the planet?Ē, where that question is off
the mark is when you think of it as two separate points.

We donít think of it that way. The whole question of sustainability is integral
to how you manage businesses. Any industrial business has to understand what
their carbon footprint is. Itís pollution, itís waste; they need to find ways to
mitigate that. Clearly, with the price of carbon, that will be a big deal.

In the case of other aspects of sustainability, like how you operate in your
community, license to operate matters to a retailer, it matters to a financial
institution. How you attract and retain employees matters. Corporate governance
matters. Long-term demographic and economic factors matter.

The best business leaders in the world have already internalized this. They
donít think of it as two separate points. They think of it as how they run their
business in a thoughtful, effective way for the long-term profitability of their
shareholders as well as their multiple stakeholders. Itís not hard for us to
understand how that operates. We think itís best practice.

WN: But when youíre trying to fill in holes in larger systems, as Bill pointed
out, how do you strike a balance between filling the hole and making a profit?
Joy: The secret here is weíve got an enormous amount of capital that needs to be
replaced. Add up all the capital thatís out there and itís basically not very
valuable, or worth anything at all, given how much carbon it puts out and how
expensive carbon is and is going to be.

So we need companies that can provide efficient capital and systems, so
companies that have this now-unaffordable system in place are going to look to
low cost of capital, low operating cost, low carbon footprint to replace it.
Revolutionary technologies like weíve seen in the semiconductor industry, and
revolutions in chemistry and physics, electronics, and whole systems Ö things
that are already existing, can be deployed in large public companies. The kind
of intelligence we get from Generation lets us know where these large markets
are. We help give an idea of what can come along. Put those things together -- I
think this is the most profitable place to be because youíre displacing things
that are so incredibly inefficient.

Personal computers were profitable because people didnít have computers before.
It wasnít a displacement market.

This is almost as good; itís probably better. Itís a bigger market, and what
weíre displacing is largely stupid. It should be easy to displace. So I think
itís going to be fun and wildly profitable, and really good for the planet. So
why not do it? How can you not be excited about this?

Blood: Thereís two points to make. The fact that there is no price on carbon
means that weíre inefficiently, inappropriately allocating capital to businesses
that are not properly accounting for their cost.

Second, weíre not advocating that capital should be allocated in a subsidized
way. Thatís not sustainable in the long term. We like philanthropy, but thatís
not what weíre arguing for here. Weíre talking about getting a proper price on
carbon and then making thoughtful allocations to capital to address these
challenges, which will be profitable for these entrepreneurs as well as existing
businesses that have worked it out.

Joy: We have a petrochemical industry. We can think of a renewable chemical
industry based on biological inputs. Cargill estimated that thatís a $1 trillion
market. Thatís big enough. I think we can make good progress working against
that opportunity. That technology doesnít exist today.

WN: I accept your premise. My question was directed at how you find the balance.

Joy: We look for great ventures within the universe of ventures that are
applicable to this problem. We find ones that are as good as any weíve seen in
the history of the partnership.

I think Generation is seeing, and the public markets see, companies better
positioned for the future than companies that arenít green. The green companies
are in better shape as the true price of these inputs becomes apparent to make
it wildly profitable. But youíve got to understand what the driving forces are,
and thatís what weíre going to do together.

Gore: We may be beating a dead horse, but let me add one more comment. There
were two earlier waves of efforts to integrate sustainability factors into
equity investing. Thirty-five years ago so-called ethical investing relied on a
negative screen that did result in the impression thatís at the base of your
question Ė- you have to choose between doing well and doing good.
Then a second wave came along called best-in-class investing, or positive screen
investing. That left that basic conflict in place.

But the third wave of global equity investing that Generation represents, thatís
based on full integration of sustainability factors into every facet of this
process, is powered by intensive research into how the sustainability factors
uncover perspectives and knowledge about business opportunities that you canít
get in any other way.

It actually does serve to increase the returns compared to an approach that is
not based on integrating sustainability factors.

In the same way, in early-stage investment opportunities, there are similar
factors at work. And with the entire global economy poised to make this enormous
shift, with the first signs of this shift already evident, we think this is a
fantastic opportunity to match up the investment dollars with the opportunities
that need to be developed quickly.

WN: When I hear people talk about technologies like solar, the business case
always depends on government subsidies. I wonder whether you have a parallel
effort to work on policy.

Gore: We think the opportunity weíre pursuing will come to fruition with or
without changes in government policy. There are consumer preferences, business
shifts in perspective; the entire economy is moving very forcefully.
There have already been policy changes in Europe and Japan and some other areas.
The state of California has already made a policy shift, more than 700 U.S.
cities have already made a policy shift.

Even if thereís no national government policy change, these opportunities are
well worth pursuing in the marketplace.

If, as we expect, there will be policy changes forthcoming, then the
opportunities are even greater. Will we join in the discussion of why those
policy shifts should occur? Yes.

We have already been part of that. At Generation we have been deeply involved in
it. Kleiner Perkins has as well. John Doerr is probably more responsible than
any single person for AB32, the bipartisan legislation that passed in California
that caused an earthquake in the policy world. Weíll all continue that policy
advocacy.

WN: What are your favorite approaches to reducing carbon emissions and other
greenhouse gases, in technology terms?

Joy: Number one, I learned from Amory Lovins many years ago, start by reducing
demand. When everyone thinks of renewable energy, they think of solar panels,
but thatís the wrong end to start from.

First youíve got to cut down the amount you use. The number one cost-effective
demand reduction is insulation. Itís not sexy, but it saves a huge amount of
energy. So companies that find ways to get businesses and residences to improve
their insulation would make a huge difference.

 

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