Who Will Be the Green VC Giant?

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Doerr started steering Kleiner away from IT and toward green tech a few years ago Lynn Goldsmith/Corbis

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Both companies say this is a friendly competition. In fact, Khosla and Kleiner have co-invested in several deals. "I spend more time with [Doerr] now than I did when we were at Kleiner," Khosla says. Still, he acknowledges that both want to be first to find and build the world's most influential green-tech startups.

The competition could help speed the development of green technologies. Although the industry is perceived to be full of promise, it's fraught with challenges, too. The field is marked by high startup costs, powerful customers and competitors, and government regulations that can change unpredictably. Venture capitalists scaled back their clean-tech investments during the downturn, putting $1.6 billion into such startups during the first three quarters of 2009, vs. $3.1 billion during the same period in 2008, according to PricewaterhouseCoopers and the National Venture Capital Assn.

So far this year only two North American clean-tech companies, Canadian geothermal outfit Magma Energy and battery maker A123 Systems (AONE), have gone public, and there have been just nine acquisitions worth more than $10 million in the market, according to investment bank Jefferies. Funding energy companies "is a difficult and new experience for many VCs," says Adam Grosser, a general partner at venture firm Foundation Capital.

Both Khosla Ventures and Kleiner have made losing bets. The firms invested in ethanol maker AltraBiofuels, which late last year closed one factory and suspended production at another after raising $170 million. Ethanol producers have stumbled due to overproduction and demand that declined as the price of gasoline fell. Khosla Ventures wrote off the investment and lost money. "If people want instant gratification, they're going to be disappointed," says Ted Schlein, a managing partner at Kleiner Perkins.

Patience may well pay off. Entrepreneurs say Khosla, now that he has deep pockets to go along with his aggressive investment approach, could help develop a new generation of green startups. "[Vinod] can add tremendous value by giving people very direct advice about what does or doesn't make sense," says Andy Bechtolsheim, who co-founded Sun with Khosla in 1982 and is now chief executive of startup Arista Networks. "He wants to bet not just on significant ideas, but ideas that can change the world."

Ricadela is a writer for BusinessWeek in Silicon Valley.

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