Venture Again

A Trillion is a Thousand Billion? Why Wasn't I Informed of This?

2007-11-06T14:27:00.001-08:00

With the title of this post, I am paraphrasing another favorite New Yorker cartoon (again).

As I toil away trying to raise a million here or a million there for some great cleantech companies (see the side bar of this blog), PetroChina made its debut on the Shanghai stock market, tripling in value, and becoming the world's first trillion-dollar market cap company.

Certainly, PetroChina cannot qualify as a Cleantech company, despite some notable important activities. So this boom is just a reminder of the importance traditional energy continues to play in our global economy, and the extent to which demand for it is now driven by China and other developing nations.

I guess investors were not concerned by the strong non-market forces which affect the stock price. Chinese regulators just announced a delay in the expected lowering of restrictions on capital flows from mainland investors. These restrictions have driven an unsustainable difference between the Shanghai-listed shares and Hong Kong-listed shares of several comapnies.

Also (coincidentally?), Chinese regulators raised the mandated price of retail gasoline last Friday by 10%. These higher prices substantially aid PetroChina's financials, since they buy crude on the world's open market, but sell refined gasoline into a price-controlled market in China.

With all these non-market influences, it is difficult to see how this trillion-dollar threshhold could be long maintained. (This also raises broader questions about goverment fiat in China which I intend to address in a separate post.)

But for the time being, a new milestone deserves recognition and reflection. Interestingly, we at Bessemer Venture Partners are forever tied to the world's first billion dollar market cap company. In 1901, J.P. Morgan purchased Carnegie Steel, merged it with Federal Steel and several other companies to form U.S. Steel. The combined company's $1.4 billion capitalization set a new mark.

Henry Phipps, a childhood friend of Andrew Carneigie, was the second-largest shareholder of Carnegie Steel. He had contributed to Carnegie Steel's success by being the first to commercialize the Bessemer steel-making process in the U.S. Phipps' share of the acquisition proceeds were worth about $67 million...in 1901 dollars! Subsequently, Phipps created Bessemer Trust and Bessemer Securities Corporation to manage these funds. The high-risk group of BSC made private equity and venture capital investments throughout the century, and was spun off in 1981 as Bessemer Venture Partners. (Thank you, Henry Phipps!)

How little the world has changed over 106 years and three orders of magnitude. From steel for the booming U.S. economy to oil for the booming Chinese economy. But do these milestones often indicate a peak? According to the Wikipedia entry, U.S. Steel was at its peak influence at its creation. Competition, commoditization and new technologies immediately started chipping away at its dominance. Does this new 13-digit milestone mark an apex for PetroChina as well? For oil itself? Will Cleantech innovations make massive national oil conglomerates as irrelevant as early 20th century steel conglomerates? For an answer, check back here in 106 years.

Gender Schmender

2007-10-11T23:31:00.001-07:00

GigaOm's Earth2Tech (what does that mean?) notes that there are too few women in Cleantech. To help spotlight some of the best, they have posted their list of the The Top 10 Women in Cleantech. While I have to agree the raw numbers of female executives and investors in the space should (and will) go up, we should reflect on what an impressive list of individuals this is regardless of gender. Having met a number of these women in person, I'd say they could take on the male Cleantech all-stars any day. With leaders like this, expect more talented women to be attracted to the field quickly.

Congratulations to my ConsumerPowerline co-investor and fellow Board Member Diana Propper de Callejon of Expansion Capital for making the list at #4. By the way, Bessemer first got to know ConsumerPowerline due to the insight and persistence of BVP Analyst Sarah Tavel, herself no slouch:

Thank goodness for the talented women in Cleantech!

Blogged with Flock

A Declaration of (Energy) Independence

2007-07-04T23:51:00.001-07:00

When in the course of human events it becomes necessary for one people to displace the hydrocarbon bonds which have fueled them (and were provided by another) and to assume from the recurring power of the earth and sun, the sustainable and independent energy which the Laws of Nature provide them, a decent respect to the opinions of the men vested in the established order requires that they should declare the causes which impel them to the separation.

We (should) hold these truths to be self-evident, that all generations are created equal, that they are endowed by Creation with certain unalienable Rights, that among these are Life (through air, water and a stable climate), Liberty (from foreign powers), and the Pursuit of (sustainable) Happiness. -- That to secure these rights, Governments are instituted among Men, deriving their powers from the consent of the governed, but also owing a responsibility to the to-be-governed, -- That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter it, and to institute new Governmental Principles and Forms as to them shall seem most likely to effect the Safety and Happiness of their and future generations.

Prudence, indeed, will dictate that Government Principles long established should not be changed for light and transient causes; and accordingly all experience has shown that the common good has been more disposed to be subordinated to private interests by Governmental activism. But when a long train of externalities, driven by private economic choices, and leading invariably to reduce the common good, are not being righted by an inactive Government, it is their right, it is their duty, to throw off such inactivity and to provide new Principles for their future security.

Such has been the patient sufferance of these United States (since at least 1973); and such is now the necessity which constrains them to alter the Principles of their Government. The history of the present government-energy complex (culminating in the current administration) is a history of repeated denials, delays and missed opportunities, all having the direct result of mortgaging the futures of the children of this country. To prove this, let Facts be submitted to a candid world.

We have based our development far too much on burning hydrocarbons, releasing global warming gases into the general atmosphere at unsustainable rates.

We have imported energy sources in massive quantities from lands hostile to our goals and indifferent to our values without regard for the repercussions.

We have obstructed international efforts to lead the global economy to more sustainable methods of economic growth.

We have refused to make minor trade-offs even in exchange for large improvements against these problems, and we have allowed our government to remain inactive.

We have allowed men at the ends of their political careers to achieve short-term personal gains by refuting that these problems even exist.

We have allowed environmental symbols to over-shadow true environmentalism and to scuttle possible common-sense compromises.

We have been discouraged by the short-term costs of alternatives, without sufficiently considering ways to lower those costs or the offsetting long-term costs of the status quo.

We have instituted inconsistent policies, designed to react to short-term outrage without laying the foundation for long-term change.

We, therefore, the citizens of the united States of America, appealing to the Supreme Judge of the world for the rectitude of our intentions, (should), solemnly publish and declare, That these united colonies are, and of Right ought to be set on a path to be Free (of established vested interests) and (Energy) Independent States; and that as States on the path to this Freedom and Independence, must take full power to establish new sources of Energy, discourage waste, internalize externalities, encourage long-term technological development that will eventually be free of governmental support, and do all other Acts and Things which conscientious States (and stewards for future generations) must of Right do. -- And for the support of this Declaration, with a firm reliance on the Truth of nature, the power of ingenuity and the ability to act in the common good, we must mutually pledge to each other our commitment, open-mindedness and Good Faith.

Blogged with Flock

The Prius Has Gone Mainstream

2007-06-24T11:53:00.001-07:00

There have been many indications building up over the last year or so, but it is now clear to me that the Prius has gone thoroughly mainstream.

Toyota announced recently that they have now sold over 1,000,000 hybrid vehicles worldwide. This still represents a tiny fraction of the cars sold over the same time period -- probably less than 2% even in recent high-volume years -- but it is a significant milestone nonetheless.

Toyota made the move last year to broaden the Prius technology into other models, and branded the system Hybrid Synergy Drive.

The long-standing California incentive that allowed Prius drivers to access the H.O.V. lane even when driving alone has now expired. Existing stickers are still valid, but no new ones will be issued. (My colleague and fellow blogger unfortunately discovered this the hard way.) The only way to get access to this privilege now is to purchase a used low-emissions vehicle with a sticker.

And supply has finally caught up with demand. For years (especially in my hometown of San Francisco) interested buyers were met with long waiting lists and the prospect of paying the dealer above sticker price. But earlier this year, Toyota began introducing incentives to move inventory, as all other manufacturers must do. And we even can now see Prius televsion commercials for the first time (below).

But I am now truly convinced that the Prius has crossed the chasm (or perhaps jumped the shark.) Twice last week on my long San Francisco-to-Menlo Park commute (in my 2000 Jetta averaging just 25 mpg; more on that later) I observed aggressive lane changing and passing on the right by Prius drivers. The hybrid electric demographic is no longer limited to globally conscious and community-oriented drivers. The American Prius driver is starting to look like the rest of America. This is a good thing for the planet and the inevitable result of success. But it certainly dilutes the brand!

Blogged with Flock

Carbon Credits and Israeli Daycare

2007-05-19T14:02:00.001-07:00

I apologize to my loyal reader for a long absence. But really, Who Has Time For This?

This week KQED's Forum produced an hour on workplace ethics, and toward the end of the show discussed the unusual behavior that can result from mixing ethical and economic incentives. The show discussed the oft-cited study of fines imposed by an Israeli day care center on parents who came late for their children. Surprisingly, the rate and duration of late arrivals increased markedly. The new hypothesis is that without fines, parents felt they were violating a social contract by being late and were reasonably responsible. Once fines were imposed, parents were likely to feel the entire social cost was captured in the "price" of the fine. They now made more purely economic decisions, being late much more frequently.

Are there any lessons to draw from this in the growing market for carbon offsets? Increasingly consumers are buying offsets from services like Terrapass, Carbon Fund and NativeEnergy. But are these offsets appropriately priced, and could this early market have adverse consequences on consumers' overall behavior?

Naturally, the first offsets are the cheapest. But in this ethics-linked market, the first to buy them are likely among the highest emitters of carbon, who could potentially do the most to limit their footprint without dramatic economic harm. Instead, they can buy cheap offsets (much cheaper, anyway than the world's median ton of carbon would cost to offset), and emit worry-free. Could putting a price on these emissions have unintended consequences? Might the small but growing handful of consumers who feel an ethical obligation to cut emissions simply pay the fine rather than change their behavior? Note that most credits do not actually adjust well to usage. Once I've purchased my sticker for the year, there is no further incentive to make the marginal choice to work from home rather than burn three gallons to make the round trip to the office. Ideally, I'd be subsidizing industrial carbon decreases AND shrinking my own footprint.

(I am working out an example of how carbon offsets might affect my pending decision about a new car. I will try to post the results shortly.)

Furthermore, in the day care study, the new proclivity to lateness continued even after the fines were removed. Apparently, parents assumed the cost of lateness had already been revealed. It's great if they aren't charged for it (free daycare!), but it is now an economic, not an ethical issue.

I do not mean to suggest carbon pricing cannot be an important tool in reducing emissions. Indeed, I think it is one of the most critical. But like any early market, structure and incentives are critical to success. Is it possible that while ethical concerns around carbon emissions are on an upswing, we should focus on those as incentives and abandon the pricing mechanisms until we can structure the mandatory cuts that increasingly seem likely?

Blogged with Flock

80 MPG Diesel Engine

2006-12-26T09:10:00.001-08:00

One fascinating branch of cleantech innovation is the drive to create substantially more efficient personal transportation. Of course, the Prius, with its branded Hybrid Synergy Drive, is a marketing breakthrough. But there are a number of other exciting approaches out there as well, from cleaner diesel engines which by their nature are more energy efficient, to plug-in hybrids (one of my personal favorites), to all-electric vehicles which claim the equivalent of 135 or even 169 mpg, to very cost-effective advances in the traditional internal combustion engine. At Bessemer, we are keenly interested in all these approaches, since nearly one-third of all U.S. CO2 emissions come from the transportation sector. We are confident that by the end of the decade, the nation will have taken steps toward addressing transportation's impact on climate change, whether it be in the form of states winning the "controversial" right to regulate in their own jurisdictions, the long-shot suit against the EPA currently before the Supreme Court, the new Democratic Congress, or just the inevitable collapse of recalcitrant opposition in the face of the facts.

But amidst all this important work, I wanted to take a moment this holiday week to offer a humorous distraction on this topic. Apparently, there is an innovative entrepreneur in Arkansas I need to go track down. Now I wasn't there, and I didn't see, but I'm telling you as it was told to me.

A man and a contractor are making the trek to an isolated cabin in the woods outside Hardy, Arkansas. The contractor is to install a pre-fabbed shed on the largely undeveloped property, and he is towing it behind his truck on a long trailer. At the last intersection of their journey -- a turnoff from the paved highway onto a narrow gravel road -- the two decide it is best to leave the shed and venture ahead to make sure the whole rig can navigate the arduous path. Are the trees hanging too low? Can the rig turn around at the end of the road?

So the contractor jumps out of his truck, engine still running, to ride along with the man. The conversation goes like this:

Man: "You left your truck running."

Contractor: "Yeah, it's an old diesel and it has a hard time starting up. So it's best not to turn it off."

Man: "Well, it's going to take us 30 minutes or more to make the roundtrip. You're going to burn a lot of fuel."

Contractor: "Oh, it's okay. I get 70 or 80 miles to the gallon when I'm idling."

Now that's a creative inventor! Let's hope the next decade brings more compelling innovations in efficient engines than that!

Blogged with Flock

The Miracle of Efficient Lighting

2006-12-20T12:53:00.000-08:00

My partner David Cowan has blogged on why he celebrates Hanukkah, even as an atheist. He also takes the opportunity to draw some analogies between the biblical story and lessons of entrepreneurship applicable today.

From my perspective, he missed two chances to extend the analogy. First, we must reference one of my favorite New Yorker cartoons of all time. (The New Yorker has asked that their cartoons not be republished without permission, so I link to it rather than post it.)

Second, there is an obvious Cleantech lesson, too. The efficiency improvement that Judah Macabee effected is roughly the same (8:1) as that between state-of-the-art LED lighting and the traditional incandescent bulb. I firmly believe that by the end of the decade 8:1 improvements in lumens per watt won't seem like much of a miracle. But it will be a a big part of how we keep the looming specters of increased emissions and global warming (scarier even than the Syrian army) at bay.

Blogged with Flock

Rate of Change

2006-11-28T22:33:00.000-08:00

In meeting with a cleantech entrepreneur recently I was reminded of a fantastic reason to be bullish on the long-term opportunities for innovation in the space. This repeat entrepreneur had built a formidable set of successes in the semiconductor industry. However, he explained he was originally trained as a mechanical engineer and had begun his career tinkering with much larger machines than semiconductors. (Deci-tech, perhaps?) But in the late seventies he decided to switch fields because, as he put it, "the rate of change in semiconductors was so much higher than in any other field."

Interestingly -- and in a very good sign for the future of cleantech innovation and investing -- this entrepreneur was now working on a new project in energy-efficient transportation. Innovation (and innovation-based investing) can only thrive where the potential rate of change is high enough to allow new companies to overcome all the inherent disadvantages of being new companies and still succeed in the marketplace. But potential rate of change is only one part of the equation. Creative, passionate entrepreneurs must be attracted to the field in order to realize that potential and actually drive the changes.

In just the past few weeks I have met with public policy wonks, disk drive manufacturing experts, mathematicians, anti-fraud software entrepreneurs, innumerable successful semiconductor executives and a veritable rocket scientist who have all been attracted to the new rate of change in energy and cleantech and who have decided to commit the next phase of their careers to this emerging trend.

I certainly understand that changing gears like this is never easy, regardless of how much prior success you bring with you. So not all of these entrepreneurs will succeed, and certainly not in their first venture. But the new rate of change in cleantech is attracting ever more brilliant, passionate individuals to the space, and so the next generation of seasoned cleantech entrepreneurs is forming as we speak. There are still several questions to ask before becoming comfortable that cleantech will provide fertile ground for venture investing for years to come: Is demand stable and self-sustaining? Why bother since the nameplate rate of change can never be as high as during the semiconductor boom, and the ROIC can never be as high for the best consumer internet companies? (Some of these questions I hope to address in future posts.)

But committed, passionate entrepreneurs are the sine qua non of disruptive industries. And the rate at which such individuals are currently being attracted to cleantech is the change that may well lay the foundation for many, many years of promising investment opportunities. It may be wise to bet against the wave of Harvard MBA's, but I wouldn't bet against the trickle-turning-to-a-flow of successful entrepreneurs working to boost the rate of change in cleantech.

Blogged with Flock

Hummer -- At Least They're Honest

2006-11-05T14:22:00.000-08:00

I don't drive a Hummer, and I don't expect I'll ever buy one. But I must admit, I've long been a fan of their advertising. Several of their television commercials have been dialogue-free 60-second cinematic stories that I have found smart and engaging.

By far my favorite is "Happy Jack." The style and camera work makes it seem like it could be a Wes Anderson sequel.

Not quite as good, but still compelling, is "Goldilocks."

But recently, things have taken an odd turn. Like a trailing candidate pulling out the negative advertising as the election approaches, the recent Hummer ads, while stylistically similar to their predecessors, have taken on a blunt, dark tone. Perhaps $3/gallon gas affected their marketing planning a few months ago.

One ad (a copy of which I cannot find online) has a young mother buying a Hummer to compensate for not having stood up to an aggressive mom at the playground. (Can anyone point out an online copy?)

But even stranger is the new "Astronomer" ad. A pencil-necked scientist rushes to trade in his puny electric car for a customized Hummer, once he calculates that an approaching asteroid will destroy the earth in 77 hours.

"We're not saying, we're just saying." Just saying what? The only conclusion I can draw is that they are admitting we all know Hummers are damaging to the environment. But even a gentle, conscientious, data-driven scientist would go buy one, if our actions had no consequences. I am open to any other interpretations anyone would like to suggest.

But perhaps there is good news coming. With the recent drop in gas prices, consumers are once again showing strong interest in gas guzzlers, according to a recent cars.com report. So perhaps Hummer can soon return to witty brand-building, and we'll all be rewarded with high-quality TV in addition to the current few options.

Sausage, Laws and Prop 87

2006-11-03T15:00:00.000-08:00

This Tuesday, November 7, Californians face a dizzying array of state and local bond proposals, initiatives and propositions. I am among those who generally believe that the California initiative process is broken, and should be reformed with higher signature hurdles, more funding transparency and greater legislative input both before and after the popular vote. Direct democracy is difficult enough for the 80-odd residents of a New England fishing island gathered in the town chapel. Thirty-three million gathering over optical scanning machines will always be imperfect.

But occasionally there is a proposition that is sufficiently fair-minded and which carries enough promise for real progress on an important issue that I get excited to vote for it. Prop 87, "Alternative energy. Research, production, incentives. Tax on California oil producers," is such a proposition (The Attorney General might consider a tag-based naming system going forward, but that's a different blog post.)

Prop 87 is pretty simple. It charges companies a fee to extract oil from the ground in California, and it uses the funds generated to support alternative energy research in California. Whether these two ideas make sense should be judged independently. If you believe they do, I would recommend supporting 87.

To me, part one is a no-brainer. Every single other oil-producing U.S. state charges companies an extraction fee. California does not. For me, case closed. I was shocked to see the editorials in the SF Chronicle and the LA Times both use twisted logic to play down this point. They argue that since sales and income taxes are higher in California than other states, oil companies are already paying for the right to do business here. Great. By that argument, let's please eliminate the Golden Gate Bridge toll and make parking in San Francisco free. It is so hard to imagine this stilted argument occurring simultaneously in two editorial board rooms, that I end up imagining the newspapers cutting-and-pasting from the Anti-87 brief book. Yes, taxes in California are relatively high to support a broad swath of infrastructure and social programs that have helped make the state the most vibrant and innovative economy in the world. It's hardly a reason to give oil companies a free pass relative to other California businesses and relative to the business standards in other states.

So on to the use of these funds. Is alternative energy research the highest and best use for up to $400 million in new government funds annually? I can respect a lot of arguments which may say no. But there is certainly a nice symmetry and significant upside to investing the funds this way. The hundreds of billions of dollars of value unleashed by the Internet would never have been possible without the hundreds of millions in basic research invested by the government in ARPANET. Today the multi-trillion dollar global energy market faces the need for tremendous innovation if the challenges of developing nation industrialization and urbanization, global warming, U.S. national energy security and finite resources are to be overcome. Government has always had a role to play in funding the basic research related to society's biggest challenges. Energy innovation should be no exception, and the regions which drive this research will benefit disproportionately for generations.

Prop 87 is not perfect. No initiative is. I know some smart people who plan to vote against it simply because the initiative process is so arcane. The process that led to Prop 87 is as ugly as the creation of any law. But it's goals are sufficiently laudable and its implementation sufficiently well thought-through that am actively looking forward to its passage. I cannot be any more eloquent on this point than President Clinton, so I won't try:

Sales 'aint got nothing on Uncle Sam

2006-10-23T22:15:00.000-07:00

I believe most people's political philosophy can largely be ascertained by knowing which form of bureaucracy they believe to be less stultifying and corrupt: the corporate or the governmental.

I don't intend to weigh in on this today (there are plenty of great examples on both sides), except to say when it comes to changing the goals midstream, the corporation (represented here) 'aint got nothing on Uncle Sam.

In case you missed it, the Bush administration has announced a slight revision to the original 1992 goals for the adoption of alternative transportation fuels. (If the article doesn't load at first in Firefox, try refreshing.)

I would love be in the board meeting that starts out like this:

"There's one piece of bad news and two pieces of good news. We aren't going to make our plan, but we only missed by 92% and we'll be back on track in just 20 extra years."

Prologue

2006-10-22T19:04:00.000-07:00

I thought that explaining the name of this blog was as good a first post as any. "Venture Again" to me evoked several themes.

I am clearly not among the first VCs to start a blog. In fact, I was hoping to win the prize for the 100,000th VC blog hosted on blogspot, but no one has contacted me yet. (There are also already several very good cleantech VC blogs.) "Again" acknowledges that this is "yet another" VC blog. But I hope it is nonetheless occasionally of interest to a few, despite the obvious fact that some VC has just started a blog about venture again.
Venture Capital is in a lot of ways about reinvention and starting over. I remember entering the industry in 1999 as an Associate covering software and internet opportunities, knowing almost nothing about the broader context of those industries. For all of 2006 I have been working like it's 1999, mapping the Cleantech landscape and developing investment theses, drinking from a firehose all the while. As the end of the year approaches, I am just now becoming more comfortable in the sector, with at least semi-formed opinions of what types of new investments I am looking to make. I hardly need a reminder to stay modest about my grasp of this rapidly evolving space -- the career cleantech entreprenuers and executives I meet with every day serve that purpose. And yet this name helps recall the feeling I had much of this year that I had just entered venture again.
The cleantech industry is now intersecting venture capital in a significant way. This clearly isn't the first time the sector has attracted significant VC interest. A perusal of the "Alternative Energy" IPOs from 1997-2000 which are now walking dead (at best) proves that. Few significant companies of long-term value emerged from this period. Apparently all the pieces for a long-term cleantech investing thesis were not in place in the late 90's. While many of us believe this has now changed for good, it is worth reminding ourselves that this industry can be very cyclical, and cleantech is a hot area of venture again.
But in reality, I've borrowed the title from the Bard. In Act I, scene i of Henry IV, part 2, Lord Bardolph delivers a speech after the (reasonably justified) rebellion of which he was a part has been supressed. I think these lines well capture the attitude all entrepreneurs must have as they pursue their work:

We all that are engaged to this loss
Knew that we ventured on such dangerous seas
That if we wrought our life 'twas ten to one;
And yet we ventured, for the gain proposed
Choked the respect of likely peril fear'd;
And since we are o'erset, venture again.
Come, we will all put forth, body and goods.

I am enthusiastic to help put forth some of the goods cleantech entrepreneurs need to build their businesses, even as they put forth their bodies. I hope this blog may provide a forum for the exchange of ideas on this topic and others, and is of ocassional value to some readers.