SAN FRANCISCO Ira Ehrenpreis may be a kind of prophet advocating investments in alternative energy companies, but don't accuse him of being noble.
In recent months Ehrenpreis, a venture capitalist at Technology Partners in Palo Alto, California, has been asked any number of times to speak to audiences about "clean tech," a term that encompasses things like solar energy, water purification systems and alternative automotive fuels.
He begins and ends every speech the same way: with a slide that stresses that to the extent that his motivations are tinged green, it has to do with the color of money.
In Silicon Valley these days, more venture capitalists are following Ehrenpreis's lead. They are driven in part by the high price of oil, which hovered around $59 a barrel on Wednesday, and the vast unmet demand for electricity in China and India.
"The reason we're allocating dollars to this sector is we think we can deliver attractive returns," said Ehrenpreis, who also serves as co-chairman of the advisory board of the Cleantech Venture Network. "It's not because we want to do great things for the environment or great things for the world," though he adds that that is a "great byproduct."
That message is resonating with venture capitalists and individual investors in Silicon Valley, where growing rich through doing good is considered ideal.
"This is an area where we've been seeing a lot of quiet investing going on," said Mark Heesen, president of the National Venture Capital Association. "People are saying so far it's more talk than action, but I think there's been a lot of sub rosa action."
This month, two of the area's top firms - Kleiner, Perkins, Caufield & Byers and Mohr Davidow Ventures - made large investments in solar energy companies. One, Miasole, based in San Jose, brought in $16 million in a fund-raising round led by Kleiner Perkins. The other, Nanosolar of Palo Alto, raised $20 million from investors led by Mohr Davidow. And on Tuesday, Energy Innovations, a company building advanced solar panels that use mirrors to track the sun and capture energy on storage cells, announced that it had raised $16.5 million in venture capital in a round also led by Mohr Davidow.
Energy Innovations, based in Pasadena, California, was founded five years ago by Bill Gross, a pioneer of Internet advertising in the mid-1990s. Gross gained a sort of fame in the dot-com era when the company he founded, Idealab, a privately held "incubator" of Internet start-ups, burned through $800 million in eight months.
Andrew Beebe, president of Energy Innovations, said that he had spoken with roughly a dozen venture capitalists recently and that half of them had been willing to discuss terms of a deal.
The field is "starting to get big and grow rapidly," said Sunil Paul, a founder of Brightmail, an antispam company that was acquired by Symantec last June for $370 million. Paul, an active investor in start-ups, has used his personal fortune to help finance three alternative energy companies. He was an early investor in Nanosolar, along with Sergey Brin and Larry Page, the founders of Google.
This attention by some of the Valley's highest-profile investors heartens Nancy Floyd, a founder partner of Nth Power, a San Francisco-based venture firm that specializes in clean-technology investments.
Still, clean energy's share of the total venture pool remains tiny, according to data provided by Floyd's firm and Clean Edge, though it has doubled over the past four years. Paul, for one, noted that clean technology might need a success story like a Yahoo or a Netscape "before every venture firm decides they need to be in this sector." Clean-technology ventures received 1.2 percent of the total amount of venture capital invested in 2000. In 2004, the $520 million that venture capitalists invested in the area accounted for 2.6 percent of the overall venture pie. "We're in a situation where we still have more deals than capital," Floyd said.
Ehrenpreis and Technology Partners, considered trailblazers in clean technology, began to focus more closely on these start-ups about five years ago. One reason was their reluctance to follow the rest of the venture capital industry, which at the time was shoveling tens of billions of dollars into dot-coms and telecommunications companies. A second reason was what they saw as the underfinancing of innovation in energy, given the potential markets.
"When you're talking about energy, when you're talking about water, you're talking about the largest markets in the world," Ehrenpreis said. His firm now devotes roughly half its resources to alternative energy start-ups. The rest is being invested in life sciences companies.
Similarly, Erik Straser, a partner at Mohr Davidow, spotted the potential of these markets and over the past three years decided to devote a large share of his time to exploring the clean-technology field. In addition to investing in Nanosolar and Energy Innovations, he and his partners have put money into a start-up that is using fuel-cell technologies to develop a portable, self-sustaining power plant. "You look at all the development that's going on in China and India right now, and you realize that two-fifths of the world's population is going through the kind of industrialization that one-fifth the world's population experienced in the 20th century," Straser said. "The size of the opportunity here is immeasurable."
He pointed to Energy Innovations as an example of a company with a huge potential market. "If they can execute on their vision, they'll be a cash register stuck on open," Straser said.
Not every venture capitalist, though, is convinced that the energy sector is thick with companies with huge money-making potential.
Vinod Khosla, a Kleiner Perkins partner, is bullish on the clean-technology field - so much so that he stepped down as a full partner at Kleiner last year in part to devote more time to investing his own money in alternative energy companies. While he has already made four such investments over the past four years, he also says he doubts that many clean-technology companies have a huge payout potential.
"I have the sense that there are a lot more niche-sized start-ups out there than big ones," Khosla said, "but some great opportunities do exist."
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