Are Venture Capitalists Conservative?

In response to my post Why Venture Capital Isn’t Embracing CleanTech, frequent commenter BreathOnTheWind asks, “Craig, you seem to have a good sense of the pulse of the VC world. Would you say as a group they tend to be somewhat conservative?”

Here are a couple of excerpts from my 2011 interview with Ray Lane (pictured), Managing Partner of Kleiner Perkins, that I offer as data points. Here’s one on investment strategy:

RL:                  Comparisons of investing in “new energy” to the Internet are full of errors.  I don’t think that energy works the same way as software—or more broadly—digital business.  Computer technology, software, internet, social networking — that whole kind of value chain is a unique business compared to almost any other industry.  In fact, I can’t think of another industry that works the same way.  In software, you can take a few months to develop a product, distribute that product, and get people to actually come and use it for free or a small fee, and you don’t have to do much heavy lifting to get value from it.  And then it becomes kind of a circle; it becomes a viral network that continues building.  Now a lot of companies obviously fail in that environment, but many succeed — and so you have low capital expended.  So even if you look at Google, Amazon, Ebay, some really highly valuable companies today and look at how much capital it took to build those companies, it was relatively small.  Not even relatively small; it was actually very small compared to anything in any other industry.  So when you look at building something in new energy, or building something in… you pick the industry… you’ve got to pay attention to the amount of capital that goes into it and the physical infrastructure you build.  The plants and factories that have to produce the products — it’s just a lot different.  Now, there are a few exceptions in the industrial business, like semiconductors.  But even with semiconductors, you may have to get to building a fab; it’s a billion-dollar or a two-billion-dollar kind of a thing.  But generally, in our digital practice here, we’ll invest a few million dollars in companies and see if they get traction and know if they’re going to be successful before you invest five or ten.   

CS:                  I’m with you.  And you’re saying that this paradigm doesn’t translate to the green space. 

RL:                  Right, it doesn’t translate at all in the green market.  There may be a very few, but if the rule of thumb is 80 percent of the cases in digital, it may be five percent of the cases in new energy. 

So that’s one issue in trying to draw that comparison.  Now, back to your original question.  I think the failure is that we don’t yet have a national agenda.  We have not taken this on as a priority one issue. 

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….and here’s one on politics:

RL:                  It would be political suicide to get behind an alternative energy agenda.  So it can be couched in terms of our future economic success — that we cannot grow without clean energy and clean energy will lead to jobs and profits.  There is a way to position this — and national security doesn’t sound like we’re simply hurting our economy to save the planet. And there are people who don’t believe those 1,000 scientists that say the globe is warming because I got ten feet of snow today.  Okay? 

It’s just a low IQ.  We believe what we see on TV.  So I think there is a way that you can put the story together so that people can generally agree — and it obviously has to be bipartisan. But it will never ever fly on an environmental agenda; it must be an economic agenda. 

Your second thing on subsidies is absolutely right.  We have to change the system.  Obama has recommended not providing the tax breaks to big corporate oil and the Republicans are fighting it.  I don’t get it.  I’m a Republican.  I’m the only one in the building.  Okay?  I can’t defend corporate tax breaks for big oil.  I just can’t.  I don’t get that.