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The Venture Corporatists

SAN FRANCISCO, CALIF. – SEPT 29, 2010 Vinod Khosla, Khosla Ventures. Photo by Max Whittaker

Despite its promise, the cleantech experiment has not been the boon that many of these investors expected.

When biofuel company Amyris went public in September 2010, market watchers were unimpressed. The company was shooting for a $100 million initial public offering. It ended up making $85 million on the day.

Some of its top investors, though, profited handsomely. Venture capital firm Kleiner Perkins Caufield Byers pulled down $69 million on its $16.5 million investment. Khosla Ventures, another VC firm, made $65.4 million on its initial $15.6 stake.

The IPO came less than a year after Amyris received a multi-million-dollar stimulus grant through the Department of Energy.

In securing that taxpayer backing, Amyris benefitted from its investors’ wealth of political connections. Those investors saw an opportunity for profit in Amyris and a host of other green energy companies, but they were also deeply committed to leveraging their own – and taxpayers’ – investment to help solve what they saw as pressing social problems.

For Vinod Khosla, a former Kleiner Perkins partner and founder of Khosla Ventures, cleantech investing was “green” in more than one sense of the word. The multiple biofuels companies in which he has invested, from his perspective, produced more than profit.

Khosla is a firm believer in “social entrepreneurship” – addressing social problems through business, technology, and innovation. That belief is apparent in his enthusiasm for green energy projects. “Most of the environmental problems we are facing today, and I consider myself an environmentalist, have technology solutions in addition to political and other solutions,” he said in 2002, while at Kleiner Perkins.

In 2008, Khosla saw an opportunity in Barack Obama. “I am one of those Republicans who is for Obama,” he explained. Khosla served as the head of Obama’s India policy team. He donated $82,000 to Democrats from mid-2006 through the 2008 election. “I think Obama will be much stronger for clean tech” than Republican candidate Sen. John McCain, he said of his support. “So that is going to be good news.”

It was certainly good news for Khosla Ventures and Kleiner Perkins, which together boast more than a dozen companies in their respective portfolios that would receive taxpayer support from the Obama administration.

Khosla’s support for Obama and the Democratic Party continues to pay off.

Khosla’s support for Obama and the Democratic Party continues to pay off. In June, he held a $32,400-per-plate fundraiser for the Democratic Senatorial Campaign Committee at his home. The president and three Democratic Senators attended. At the event, Obama touted the administration’s “climate action plan,” which calls for additional “investment” in biofuels. Months later, Khosla-backed biofuel company LanzaTech received a $4 million grant from DOE.

Days after the department announced that grant, Jim Messina, Obama’s former campaign manager and the head of Organizing for Action, his personal advocacy group, joined LanzaTech’s board. LanzaTech’s grant, its second from DOE, came through the American Recovery and Reinvestment Act, better known as the stimulus.

More green than clean

The stimulus bill was the largest ever infusion of taxpayer funds for the cleantech industry, and represented the primary vehicle for taxpayer support of companies backed by Khosla, Kleiner Perkins, and other politically connected cleantech investors.

Despite its promise, the cleantech experiment has not been the boon that many of these investors expected.

Looking to land some stimulus pork in 2009, Amyris enlisted the services of Brownstein Hyatt Farber Schreck, a Denver-based lobbying firm with deep ties to energy policy powerbrokers in Washington D.C.

“Members of our Group have worked for Congress and for federal and state agencies, including Congressional energy committees, the Departments of Energy and Interior, the Department of Justice, the Environmental Protection Agency, and the Colorado State Attorney General’s office,” its website says. “We bring this knowledge and access to bear on all of our clients’ behalf.”

Brownstein founding partner and president Stever Farber’s political clout goes beyond policy: he served as the co-chair of the host committee at the 2008 Democratic National Convention, in his native Denver. Farber was crucial in raising the $40 million necessary to put on the convention.

“He’s famous for hiring ex-politicians, their children and ex-judges. He’s very good at making connections with people who have access to politicians,” Floyd Ciruli, the head of political consulting firm Ciruli Associates, said of Farber, who is also close friends with Bill Clinton.

“When any of Steve Farber’s clients have a problem, federal elected officials will feel obligated to listen to him if he approaches them later on federal policy interests,” Steve Weissman, then a policy analyst at the Campaign Finance Institute, told the New York Times.

That extensive political muscle was brought to bear on Amyris’ behalf.

Brownstein “was integral in helping five energy clients,” including Amyris, “obtain more than $300 million in grants through the American Reinvestment and Recovery Act from the Department of Energy.”

The company received a $25 million grant from the Energy Department in late 2009 to produce biodiesel.

Brownstein also reported that it was “assisting Amyris in developing cooperative research agreements with the National Renewable Energy Laboratory in Golden, Colorado.”

The firm was well positioned to provide that support. Brownstein senior counsel John Herrick, “one of America’s leading practitioners in assisting companies in entering into public and private partnerships in energy financing,” affording to his company bio, helped create the NREL.

Herrick’s expertise paid off. In January 2010, NREL announced a $34 million partnership with a handful of biofuel companies, including Amyris.

As Brownstein used its lobbying muscle to secure backing for Amyris, another one of its VC investors, the Westly Group, was exercising more subtle advocacy on its behalf.

Steve Westly, the firm’s eponymous managing partner, raised more than $1 million for Obama’s presidential campaigns, and was rewarded with a speaking slot at the Democratic Party’s 2012 convention.

Westly co-chaired Obama’s California campaign and served as his national finance chairman in 2008. He has hosted the president at his Silicon Valley home for multiple fundraisers.

“We found that Steve is very helpful and insightful in understanding the political landscape, especially from the energy side,” said Amyris co-founder Kinkead Reiling.

Westly is one of hundreds of Obama fundraisers to subsequently receive perks from the administration. He was appointed to a DOE panel that directly advised then-Secretary Steven Chu on, among other issues, the disbursement of stimulus funds on green energy projects.

Amyris is one of four Westly-backed ventures to receive taxpayer funding through Obama’s Energy Department. “Because of his past in D.C., [Westly] has been able to get some introductions. Once he introduces us, it’s our job to actually do the work and show whoever he has introduced us to the value we can bring,” Reiling told the Center for Public Integrity.

But even he acknowledged the optics of a top Obama fundraiser and DOE adviser going to bat on behalf of companies in which invested.

“This is the sort of conflict the DOE and USDA and other agencies run into when they take a step — which I think is a good one — in trying to involve people from industry in helping to advise and set direction,” Reiling noted.

DOE has rejected allegations of a conflict, noting that Westly’s role at DOE was “advisory in nature.” And due to the nature of his position, Westly is not required to file personal financial disclosure information.

When approached by an ABC News reporter in 2011, Westly refused to answer questions about his apparent conflict of interest. He was quickly whisked away by a Democratic National Committee staffer.

As Westly served on a DOE advisory panel, another Amyris backer, Kleiner Perkins partner John Doerr, was offering his expertise on the president’s Council on Jobs and Competitiveness.

Doerr has donated less to Obama directly, but his Democratic Party bona fides are unimpeachable. All but $15,000 of his roughly $700,000 in political contributions since 1996 has gone to Democratic candidates, committees, or interest groups.

In addition to his work on the jobs council, Doerr directly advised Obama’s transition team, helping them devise the green energy portion of the stimulus bill that would finance a handful of companies in Kleiner Perkins’ portfolio.

Doerr “urge[d] them to use the new economic stimulus package to modernize the electric grid and offer new incentives to help clean energy startups get off the ground,” the San Francisco Chronicle reported.

He also hosted Obama at his home in 2011 for a meeting with top Silicon Valley executives, including Westly, Facebook’s Mark Zuckerberg, Apple’s Steve Jobs, and Google’s Eric Schmidt.

Doerr estimated that a cap on carbon emissions would increase Amyris’ profit potential by 25 percent. So when California placed a measure on its ballot in 2010 to suspend carbon caps in the state, Amyris investors were highly active in helping to defeat the measure.

Khosla couched his position primarily in economic terms, declaring that Prop 23 would “kill markets and the single largest source of job growth in California in the last two years.”

Westly also touted the supposed economic benefits of the mandate. Cleantech, he said, is California’s “highest growth job segment. This state’s job engine for the future is in clean technology.”

While he too stressed its economic benefits, Doerr, who put up millions to defeat Prop 23, was emotionally invested in the fight.

“I can’t wait to see what we…do about this crisis,” Doerr said during remarks on cleantech and climate change in 2007. “I really, really hope that we multiply all of our energy, all of our talent, and all of our influence to solve this problem.”

“If we do, I can look forward to the conversation I’m going to have with my daughter in 20 years,” he said, trying to hold back tears.

Doerr specifically cited Amyris during that speech, which one website posted under the headline, “John Doerr sees salvation and profit in greentech.”

Redefining “investment”

The confluence of “salvation and profit” has created a subset of investors who, in alliance with like-minded elected officials, have poured money into green ventures.

BusinessWeek spotted this trend in 2006. “You know a cultural movement is real when the money men get on board,” it noted in a 2006 piece on the financial sector’s increasing interest in green energy ventures. “Saving the planet, protecting America, doing God’s work, cynically exploiting a feel-good trend — call it what you will. Wall Street sees money to be made.”

Despite its promise, the cleantech experiment has not been the boon that many of these investors expected.

“Success has proven elusive even for the smartest guys in the solar-heated room,” the Wall Street Journal reported in December. “Five years after Al Gore joined the prestigious venture-capital firm Kleiner Perkins to back environmentally correct companies, the collaboration has yielded few successful exits for Mr. Gore and his partners, along with some spectacular disasters.”

A recent survey found that 61% of venture capitalists expected less cleantech investing in 2013, the Journal noted.

But as DOE restarts an electric vehicle program even as some of its beneficiaries eye bankruptcy, and as it doles out more biofuel “investment” to politically connected companies such as LanzaTech, predictions of the demise of taxpayer-backed social entrepreneurship may be premature.

Even political institutions that acknowledge the financial shortfalls of cleantech investing seem determined to continue pouring money into it.

“We’re all familiar with the J-curve in private equity,” said Joseph Dear chief investment officer at the California Public Employee Retirement System in March. “Well, for CalPERS, clean-tech investing has got an L-curve for ‘lose.’”

“Our experience is this has been a noble way to lose money,” Dear added.

As long as green technology remains not simply an economic venture but a moral one, taxpayers will continue to nobly lose money as politically connected “social entrepreneurs” reap a windfall.

Follow Lachlan on Twitter.

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