Wednesday, July 9, 2008

Kleiner Bets Big on Green Tech

If you are still not convinced that alternative energy is the next big thing, take the time to read this excellent Fortune article, Kleiner Bets the Farm (click to view it). In the world of investing, very few funds come close to Kleiner Perkins Caufield & Byers' enviable track record. This top VC fund has doled out $10 billion to its major investors, all of which are university endowments, philanthropic foundations, or public pension funds. "That's $1 billion a year on average," according to John Doerr, Kleiner's senior partner (shown in the image above). Only one other VC fund comes close to matching this track record, Kleiner's chief rival, Sequoia Capital.

The newest addition to the Kleiner funds is the $500 million Green Growth Fund, launched in May. I quote the following from the article:

"... the green fund represents more than just an expanded product line for Kleiner - it's an attempt to stretch the definition of venture capital. Ever since the industry got its start 40 years ago, VC firms have always been small partnerships investing relatively small amounts of money, hoping for a few giant payouts to outshine the inevitable flubs. But together Kleiner's three most recent funds - including its latest, $700 million venture fund raised this spring - amount to nearly $1.6 billion, a paltry sum compared with the giants of private equity but a massive amount for the venture business. And unlike the usual startup-centric VC approach, Kleiner's strategy focuses on existing alternative- energy companies that are well beyond the launch phase.

In essence, like some of the biggest private equity shops, Kleiner is becoming more of an asset gatherer, as opposed to a builder as it was in the early days of Amazon and Google. Then again, Kleiner needs more money than ever before because energy projects require billions of dollars in investments, not the millions required to jump-start a Web idea. (A supply of Red Bull, beanbag chairs, and a few powerful PCs are a lot cheaper than factories, transmission lines, and regulatory-compliance departments.)

Having said all that, we are talking about Kleiner Perkins here, not some untested investment group, and already there are hints that the Kleiner mystique will light up new fields of dreams."

Investors should pay close attention to where leading VC funds are placing their bets. As I stated in my previous post, I believe that alternative energy will likely experience a long secular bull market. It is still early too early to tell which companies will be winners and which ones will be losers but despite the volatility, the sector offers tremendous potential. Institutions should follow Kleiner's lead and carefully research the sector to discover its hidden gems.

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