Khosla Ventures raises the largest amount of VC since 2007 to invest in clean technology and IT companies.
The first two quarters of 2009 saw a downturn in clean tech investments, but Khosla Ventures, the venture capital firm headed by Vinod Khosla, co-founder of Sun Microsystems, single-handedly turned that trend around with its late August announcement of the massive fund it had raised for green tech and IT start-ups—to the tune of $1.1 billion. The fund is the largest amount raised by a VC firm since 2007, the biggest first-time fund since 1999 and one of the largest ever launched for clean tech.
The $1.1 billion will be used to fund two other closely related funds: a $800 million fund that will make investments of $5 million to $15 million in more established technologies and a $275 million fund that will make investments of $2 million in earlier stage technology companies.
"I personally believe that [clean tech] will be the largest sector for venture investment in the not too distant future," says Mark Heesen, president of the National Venture Capital Association. He attributes a slow first half of the year to the recession and predicts steady long-term growth, but that growth comes at the price of slower payoffs for VCs.
"This is not your 20-year-olds who can come up with a new clean tech idea," Heesen says. These start-ups require intense research and infrastructure and it will "take a much longer time for them to ripen to the point where they can be acquired or go public."
Often it's the ideas furthest outside of the box that appeal to investors. "I've seen how you can have an idea that everyone thinks is crazy," says Brent Constantz, president and CEO of Calera, one of the green companies Khosla is funding. Constantz got funny looks for two of his past ventures, which are now huge moneymakers: using cement instead of screws for orthopedic surgery and a cardiovascular decalcification program that flushes veins with hydrochloric acid.
Calera, which takes excess carbon dioxide from coal plants and converts it into fodder for cement, is Constantz's fourth Silicon Valley-based start-up. This previous experience has allowed him to get a faster start—since securing funding from Khosla in 2007 he has grown the company to 100 employees and a pilot operation in California is already capturing CO2 from a 10-megawatt plant.