Khosla Increasing Clean Technology Bet With $1.05 Billion Fund

Vinod Khosla, the billionaire venture capital investor, is increasing his bet on clean technology.

Khosla Ventures, the venture capital company he formed in 2004, will steer as much as 65 percent of its new $1.05 billion fund to support businesses developing renewable sources of power, energy-efficiency technology and LED lighting products, Khosla said.

In supporting early stage companies working on unproven technology, Khosla expects some to fail. Lawmakers in Washington have criticized a U.S. Energy Department program that followed the same strategy by offering a loan guarantee to Solyndra LLC, a solar-module maker that filed for bankruptcy Sept. 6.

“When you’re trying new things, some things just don’t work,” Khosla said in a phone interview yesterday. “Solyndra wasn’t cost competitive with other companies in the Valley; there are other companies that are doing fine.”

The company’s Khosla Ventures IV fund, announced Oct. 13, will also support Internet, mobile communication and information technology companies.

Khosla is seeking companies that are striving for scientific breakthroughs, such as Soraa Inc., which he has backed since 2007. Soraa has “fundamentally changed the materials on which LEDs are built,” he said. That means there’s “more science risk than just a little bit of engineering.”

Thermoelectrics

He’s also interested in thermoelectric materials, which generate power from waste heat. “Thermoelectrics, if they have a large enough breakthrough, which we hope for, could revolutionize air conditioning, cooling and refrigeration,” Khosla said. They may also revolutionize power generation to become “both a demand-side and a supply-side technology.”

Khosla Ventures said its clean-technology portfolio has generated about $1 billion in profits. That includes gains from the initial public offerings of biofuels companies Amyris Inc. (AMRS), Gevo Inc., and Kior Inc. Khosla has also backed at least two companies that have been acquired by larger entities -- solar energy developer Ausra Inc. was bought by Areva SA in 2010 and efficient motor maker Ramu Inc. by Regal Beloit Corp. in April.

Khosla Ventures, based in Menlo Park, California, in 2009 started a $300 million seed fund to back high-risk companies and its $1 billion Khosla Ventures III fund to make more traditional investments in early- and growth-stage companies.

‘High-Risk’ Investments

“We do a lot of very high risk, early investments,” he said. “We’ll invest a million or two and we might fail at it, but if it works then we’ll put 10, 20, 30 million in it.”

There are ways an investor can limit risk, he said. “Our success rate is not lower than anybody else I know, even though it seems like we’re taking larger risks,” Khosla said.

“Instead of just investing, we’re spending a fair amount of time helping these entrepreneurs in how to build their businesses,” he said. “That takes a high-risk project and turns it into a lower-risk project.”

To contact the reporter on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net