In August, the California legislature passed a landmark bill to limit greenhouse gas emissions in the Golden State. If Governor Arnold Schwarzenegger approves the bill, as expected, it will be one of the most aggressive state efforts to combat global warming. What few Californians may realize is that the bill might have died on the floor without the energetic support of L. John Doerr, a partner at Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers. Doerr and his cohort of green-leaning VCs may be steering California in a desirable direction. Still, it riles Doerr's critics that if it becomes law the bill could give his companies a helping hand.
From the beginning, this legislation was politically risky for lawmakers to back. Energy companies loathed it, and few businesspeople had come to its defense. Then, two weeks before the vote, Doerr and the top executives from several alternative-energy startups visited legislators at the state capitol and held a news conference in support of the bill. A week later, it had all the votes it required.
Lawmakers who signed on after Doerr's visit say his group's endorsement made all the difference. And that's no surprise, given his track-record in business. Since 1980, Doerr has sunk millions of dollars into startups such as Amazon.com (AMZN), Google (GOOG), Intuit (INTU), and Sun Microsystems (SUNW) and watched the stakes multiply hundreds or thousands of times. "The fact that a portion of the business community saw benefits to [this bill's] passage was a significant factor in my decision," says Assembly member Juan Arambula, a Democrat from Fresno who supported the bill.
As Doerr and his colleagues expand their investment portfolios beyond info tech into heavily regulated fields such as energy and stem-cell therapies, they're contributing money, time, and powerful contacts to political causes that match their beliefs--and reward their investments. "Policy matters, and we will be active in policy," Doerr said in May at KPCB's Cleantech Venture Network conference in San Francisco.
In addition to backing the new global-warming bill, which could be signed in a matter of days, Doerr and former KPCB partners Vinod Khosla and William Randolph Hearst III have donated almost half of the $4.4 million raised to pass Proposition 87, another environmental initiative that will be on the November ballot in California. Prop 87 would impose a tax on oil production in the state and use the proceeds to finance a $4 billion alternative-energy research program.
Actions like these draw plenty of criticism--and Doerr is used to it. In 2004 he and several other VCs pushed for a California Ballot initiative called Proposition 71. The legislation, which 59% of California voters approved, created a committee of political appointees to dole out $3 billion to California stem-cell researchers. Venture-backed startups will eventually be able to license and commercialize the taxpayer-funded research, just as they would be able to do with energy research funded by Proposition 87. That has caused opponents of the energy measure to cry foul. "The proponents stand to make a financial gain from its passing," says Jon Coupal, president of the conservative Howard Jarvis Taxpayers Assn. "That we find offensive."
Doerr concedes that Proposition 87 could help some startups in KPCB's portfolio, but says that those companies don't need a new law to thrive. "The ventures are going to do very well with or without this legislation," he said in an interview with BusinessWeek. Furthermore, the bill will boost California's economy by helping to generate a new alternative-energy industry in the state, he says. A recent study by a panel of California state agencies predicted that building renewable energy infrastructure and battling climate change would create 83,000 jobs and $4 billion in income in the state by 2020.
Altra Inc., a Los Angeles ethanol producer that has raised $183 million from KPCB and other investors, says it has already created many jobs. In July the company acquired California's largest ethanol plant, which is in Goshen, a town in the state's agricultural San Joaquin Valley. "It took hundreds of people to build that plant," says Altra Chief Executive Larry Gross, who stumped for California's new global-warming bill with Doerr at the capitol in mid-August. "Certainly, we have the self-interest that [the bill] will benefit our company," he says. "But it will benefit a lot of other businesses and consumers."
Doerr says the overall green-energy market is "probably the largest economic opportunity of the 21st century." Since 2001, KPCB has committed $200 million to at least nine energy startups. Ion America Corp. in Sunnyvale is developing a solid oxide fuel cell that can supply electricity to commercial buildings and residences. Amyris Biotechnologies in Emeryville is creating genetically altered microbes that excrete fuel. And Miasole in Santa Clara prints solar cells on thin plastic sheets.
To Doerr, alternative energy is an investment theme on the scale of the Internet. Of course, such markets are given to volatile cycles of hype, disillusionment, and rebound. After a bull run that began last year, alternative-energy stocks have recently fallen along with the price of oil, which, when low, makes alternatives less attractive. In mid-September, ethanol producer Hawkeye Holdings postponed its initial public offering, citing market conditions. The stocks of two other ethanol makers, Aventine Renewable Energy Holdings (AVR) and VeraSun Energy (VSE), are down 42% and 48%, respectively, since debuting in June.
Undaunted, Doerr has set his sights beyond California. In Washington, KPCB partner emeritus E. Floyd Kvamme serves as co-chair of President George W. Bush's Council of Advisors in Science & Technology, giving the venture firm access to the Administration. "We worked to get the notion of oil addiction and cellulosic fiber into the President's State of the Union address," Doerr told reporters at the May conference. Bush's famous words, "America is addicted to oil," and his reference to ethanol made from switchgrass came partly from Doerr and his partners through Kvamme.
KPCB also maintains close ties to the U.S. Congress. In the past year, Doerr and his partners have discussed energy policy with Senators Richard Lugar (R-Ind.) and Democratic Senators Barak Obama of Illinois and Joseph Lieberman of Connecticut. The firm has worked to pass a bill sponsored by Lieberman and Arizona Senator John McCain that, like California's new bill, would set limits on greenhouse gases and let businesses trade emissions credits through a market-based system.
"We believe in markets," Doerr told attendees at KPCB's May conference as he explained his support for such a trading system. His approach to green politics reflects this faith. Critics who accuse Doerr and his allies of self-serving politics might readily forgive them as long as the startups they fund bring clean, inexpensive energy to Californians. But as the state waits for the payoff from its investment, it could run up quite a bill.
By Justin Hibbard, with Christopher Palmeri in Los Angeles