VCs Need a Blooming Lesson in Clean Energy


It's barely been a week since a star-studded media frenzy marked the public launch of the Bloom Box, a mini power plant that is supposed to provide homes and businesses with affordable and clean electricity. The box, powered by fuel cell technology, is made by secretive clean energy company Bloom Energy. So far, the Sunnyvale, Calif.-based company has managed to raise a staggering $400 million from investors such as powerhouse venture firm Kleiner, Perkins, Caufield & Byers.

In February, the Bloom Box was presented as a possible "holy grail" of green technology on CBS' (CBS) 60 Minutes when it debuted -- with promises of clean, abundant and cheap energy. However, under its chief executive, KR Sridhar, the company has been tight lipped about any concrete details about the efficiency of its technology and some energy technology experts, who have tried to piece together the details about Bloom Energy's technology are unimpressed.

Bloom May Be Off The Box

Despite big promises and the initially fawning press coverage, the bloom already seems to be coming off the box.

"[Bloom] is not the right price, remains overly dependent on natural gas, and isn't something that is going to light up a whole neighborhood," says veteran technology analyst Chris Nelder, who wrote a critique of not only the company but the media circus surrounding its launch. The fundamental issue, here, is whether the company can deliver the payoff in cost-savings to customers it promises.

Other green technology observers are also skeptical of the company's ability to produce large quantities of the boxes in a reliable and cost-effective way. "These types of fuel cells have been around for a long time but are incredibly finicky devices," says Michael Kanellos, the editor of Greentech Media. "It will be very difficult to produce them economically and so that they will last for a decade."

Kleiner Perkins' Heft May Not Be Enough

Successful or not, the splash that Bloom has made is a testament to the marketing muscle of Kleiner Perkins and the passion of its star partner John Doerr, an early investor in Google (GOOG) and Amazon (AMZN), among many others.

Doerr famously came to tears when discussing the importance of clean technology investments at an industry conference in 2007. But he is also prone to going overboard when it comes to pushing his investments. In 2001, Doerr had to apologize for a high-profile statement declaring the Internet to be the greatest legal creation of wealth in human history during the dot com boom. Not as much wealth as it seemed may have been created when the bubble popped and even its legality of his statement came under scrutiny given the hand that some on Wall Street had in pushing money-losing companies onto the public markets.

Kleiner's ability to thrust an emerging technology into the limelight is now on display again. Bloom is getting a big boost from an endorsement by former Secretary of State Colin Powell, who serves on the company's board of directors. But Powell is not necessarily an impartial luminary who joined Bloom's board because he is impressed by its technology. Instead, he is a strategic limited partner at Kleiner Perkins (limited partners are passive investors in venture and private equity funds) and because of that, he may also have a stake in Bloom as well as other Kleiner companies.

Heyday of The Internet

Beyond the buzz, it remains unclear how much of a role the venture capital industry can have in many nascent clean energy sectors. Its historic focus has been on creating nimble startups focused on commercializing existing technology rather than investing in the painstaking, capital-intensive basic research required to break new ground. That role will need to be clarified given clean energy's already large and growing importance. Using the industry as a driver of basic innovation, as some commentators have suggested, is likely to fail. Comparatively glacial institutions and universities will be needed to conduct fundamental research.

"These technologies won't be like," Kanellos says. He notes that the massive amounts of Federal funds that were steered through research universities like MIT and Stanford played a major role in creating the basic infrastructure of the Internet.

Some other top tier venture capital firms, meanwhile, say they are more interested in opportunities that help commercialize and deploy clean technologies -- arenas where their extensive backgrounds in helping build Internet and telecommunication companies can be especially valuable -- than the heavy lifting required to develop a new type of car company, for example.

Example: Richard Wong of Accel, the elite venture firm that is currently an investor in Facebook and funded a long list of networking homeruns during the Internet build out, is an investor in solar play SunRun. This is a company that is focused on driving the adoption of solar technology by making it easy and affordable for mass markets, a process not all that different from helping to deploy rather than develop broadband technology.

Helping energy technology startups by providing business savvy such as marketing (as Accel has done with SunRun), may ultimately be more valuable to the company than more technical knowledge. "[Energy companies] may not need yet another polymer engineer, but they do need to know how to educate 10 million people about their product in an efficient way," Wong says.

But the venture industry will also have to work alongside deeper pocketed institutions once again. Says Wong: "It was ultimately DARPA (Defense Advanced Research Projects Agency), defense industry funding and government support blended with private capital that helped commercialize the Internet so well."

As for Bloom Energy, Kleiner Perkins may have bitten off more than it can chew. Rather than doing what it does best -- bringing a promising, ready-for-prime-time technology to market -- the firm is trying to break new ground by investing in expensive basic research. With such an ambitious agenda Bloom is going to need a lot more than high profile investors and media puffery to succeed.