TED GREENWALD, Wired, November 12, 2007
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 we’re 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 we’re going to succeed in quickly developing a low-carbon economy. We’re very excited to have this chance to work together and bring these two world-class teams together.
Bill Joy: It’s widely recognized that we’re 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, there’s 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. We’re 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. That’s why we’re so excited to be working with Generation and Al Gore.
Wired News: So you’re 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 you’ll cope with the inevitable flood of — how can I say it politely? Un-actionable ideas.
Gore: Between Generation and Kleiner Perkins, we’re 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 aren’t (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. We’re 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 can’t 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, we’re asking for a lot.
But it’s 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: It’s 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: Here’s 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. We’ve 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.
That’s 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. We’re talking really arcane stuff here. For example, if you want to capture CO2, the material you capture it with has to be recycled. It’s not the capture that’s hard, it’s the recycling of the material that captures, cost-effectively.
Then, of course you have to do something with the CO2 once you capture it. That’s another piece. So there are pieces missing. Let’s find them.
WN: Do you have a specific set of criteria that you’ll 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 we’re 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 it’s 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.
It’s not just green technology. It ranges from water to markets to the carbohydrate economy to energy efficiency. It’s a broad series of industries and businesses.
Second, it’s across all stages of companies’ development. We’re talking, at this moment, about early-stage businesses, but that’s 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 it’s not just the small startup that you’re familiar with, that Kleiner is so great with. It’s that among other types of businesses.
Joy: At the moment, in my funnel, personally, I have about 100 ventures. They start from “somebody has an idea” or “I saw this patent,” or something, and at the far end are the things we work on with Generation.
There’s probably 10 such ventures. We looked at one just a couple of weeks ago. We went into diligence on it. We didn’t end up making the investment.
One of the partners here is seeing one of those a week. So if the flow picks up here, we’re 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 isn’t 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 doesn’t take anywhere near 10 times the work to process 10 times more once we know areas — and we do. That’s 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, “is it possible to make money and do well by society or the planet?”, where that question is off the mark is when you think of it as two separate points.
We don’t 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. It’s pollution, it’s 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 don’t 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. It’s not hard for us to understand how that operates. We think it’s best practice.
WN: But when you’re 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 we’ve got an enormous amount of capital that needs to be replaced. Add up all the capital that’s out there and it’s 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 we’ve seen in the semiconductor industry, and revolutions in chemistry and physics, electronics, and whole systems … 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 you’re displacing things that are so incredibly inefficient.
Personal computers were profitable because people didn’t have computers before. It wasn’t a displacement market.
This is almost as good; it’s probably better. It’s a bigger market, and what we’re displacing is largely stupid. It should be easy to displace. So I think it’s 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: There’s two points to make. The fact that there is no price on carbon means that we’re inefficiently, inappropriately allocating capital to businesses that are not properly accounting for their cost.
Second, we’re not advocating that capital should be allocated in a subsidized way. That’s not sustainable in the long term. We like philanthropy, but that’s not what we’re arguing for here. We’re 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 that’s a $1 trillion market. That’s big enough. I think we can make good progress working against that opportunity. That technology doesn’t 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 we’ve 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 aren’t green. The green companies are in better shape as the true price of these inputs becomes apparent to make it wildly profitable. But you’ve got to understand what the driving forces are, and that’s what we’re 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 that’s at the base of your question — 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, that’s 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 can’t 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 we’re 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 there’s 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. We’ll 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 that’s the wrong end to start from.
First you’ve got to cut down the amount you use. The number one cost-effective demand reduction is insulation. It’s 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.