Gates, Clinton, Two Bills on The Same Page

by / Thursday, 01 March 2012 / Published in Smartgrid-CI Blog

Bill Clinton and Bill Gates expressed the same opinion at the ARPA-E conference earlier this week. Both think that governement investment in energy should be boosted. « The government should invest even more money in ARPA-E,” and “it would be a terrible mistake” not to boost the budget for energy, Clinton said. http://gigaom.com/cleantech/bill-clinton-we-need-to-boost-the-budget-for-energy/
 

The day before, in the same venue, Gates went even further : « It’s crazy how little we’re funding energy » he said.

http://gigaom.com/cleantech/bill-gates-the-lack-of-energy-funding-is-crazy/

Coming from the former President, this opinion may appear less surprising than coming from Bill Gates, whose company never asked for any government money (as far as we know).

Since the fifties, when VC was invented by the General Doriot (The French investor who helped Ken Olsen Start Digital Equipment), VC firms are used to fast and high return from high tech industries that offer relative technology visibility. Energy is not the same. It is riskier because  no one can predict yet what technology will win big at the end. The recent collapse of Solyndra is the best example of this uncertainly. More importantly, as Gates recalls us, there is no Moore’s law in the energy sector, no exponential improvement to expect there that would speed up customer adoption and shorten the « time to oil » (time to return), as the oil industry puts it.

As a result,  financial return in the energy sector is not at all what it is in the high tech. world. Expectations in energy are much longer shot.

High uncertainty and long time to return are two things investors do not like very much. Trouble, says Bill Gates, is that Moore’s law has warped our minds when it comes to energy.  http://news.cnet.com/8301-11128_3-57386725-54/gates-on-energy-it-revolution-has-warped-our-minds/?tag=txt;title

And Bill Gates is right as evidenced by the « unfair » treatment reserved by investors to clean energy, compared to high tech. A few days ago, SolarCity managed to raise $81M to finance its expansion. Such a high amont is considered exceptional…

http://gigaom.com/cleantech/solarcity-raises-81m-to-expand-rooftop-solar-empire/
….and it is, compared to some other financing operations.

The same day, Alektrona a smart grid start up managed to make the headlines (as it appeared in Smartgrid-CI) because they were lucky enough to raise $200,000 !  

http://www.pbn.com/Slater-reinvests-in-Alektrona,65723

On the other hand, with the SolarCity case we are still very far from what happened during the high tech « bubble years ». Remember; almost anyone could raise tons of money based on any business plan .This led to some outrageous collapses such as Boo.com’s.

This start up raised $135M in 1998 from VC’s on a paper thin business plan that promised a fortune to everyone who believed that selling sneakers online would be a definitive breakthrough for ecommerce.

http://en.wikipedia.org/wiki/Boo.com                         

It took 18 months only for them to engulf the whole amount, including a lot of cash spent on lavish expenses. This example is a little extreme but the VC community attitude toward high tech has not changed fundamentally over time . Investors remain more attracted to Facebook than to any energy venture and this situation is enough to make energy entrepreneurs a little jealous.

What to do about it ? Both Bills are right, government’s involvement is necessary but is it that simple ? Are we sure the government is able to make the right choices  for investment, or at least choices that are resonably right over time ? Answer is no and again the Solyndra example, where the decision to grant a $500M loan was not fully independent from political pressure, tells a lot about the government’s limitations in this matter.  
Another difference between high tech in the 50’s and beyond is that the energy industry is not new. Giants like GE, Johnsons Control, Honeywell and many others have been around for a long while and they are able to make (usually low risk) technology choices and to bring advice but they have their own goals and constraints and they cannot substitute for the VC community overnight.
Any government initiative should leverage their competence. But again, the US is neither Germany nor Japan. Nobody suggests that the US create their own MITI.

It would not work. One reason is that ultimately, the strength of the US industry comes from the innovative spirit of its entrepreneurs. It would be too bad to ignore that.  

A US model to new energy development is yet to be invented. It should combine goverment long term approach to investment, the energy industry knowledge of the technologies, the VC’s know how on turning innovation into business, the tremendous potential of private and public research, and most importantly it should fully leverage the American spirit of entrepreneurship.

Maybe just a matter of delicate balance. Any thoughts anyone (Please feel free to share them here)?

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