And what's he's learned from previous cleantech investments.
It’s been nearly a decade since famed investor John Doerr—overcome by his emotions —fought back tears while wrapping up his now famous TED talk on climate change. It was a call to action; to fix what his teenage daughter had aptly noted was a problem caused by his and previous generations.
And Doerr acted.
As partner of Kleiner Perkins Caufield & Byers, he helped shape the storied venture-capital firm’s investment strategy into cleantech; pouring millions into renewable energy startups—some of them crashing and burning—while others went onto great success.
Now Doerr, who is now chairman at Kleiner Perkins, is joining a global “who’s who” of successful entrepreneurs, venture capitalists, and business leaders in a $1 billion investment fund led by Microsoft-co-founder Bill Gates that aims to reduce greenhouse gas emissions to almost zero by financing emerging clean energy technology.
Doerr recently spoke to Fortune about why he’s participating in a venture fund that has a 20-year timeline, what he’s learned from previous investing mistakes, and what’s most excited about for the future.
This interview was edited for length and clarity.
Why this fund? What’s so compelling about it that you had to participate?
My partners and I have been involved in the design of the fund for quite some time; and we’ve also been co-investing with Bill Gates in energy innovation.
This notion of “grand challenges” is one that Bill Joy (technologist and Sun Microsystems co-founder) first articulated; that there are game-changing innovations and our job is to look for, to find, and then fund, and accelerate the success of them.
So we’re able to bring a lot of experience and perspective to this opportunity, which has only grown larger over the last decade. That’s why I’m compelled by it.
I famously gave a TED talk describing a conversation with my daughter when she said “your generation created the problem you better fix it.” And we haven’t fixed it yet, and so, she’s on my case.
Cleantech was a hot industry for venture capital a decade ago, There were some successes and a lot of failures too. What did you learn from that time period? How will you apply those lessons to this new fund?
This is risk capital; this is venture capital or growth capital, so there will be failures. If there are not, then we’re probably not taking enough risk.
Against that context, what we’ve learned is that it’s hard and it takes a long-term point of view. So to have a 20-year fund with patient capital largely from individuals who successfully built businesses, and in some cases whole industries, it’s an important difference from the world of venture funds that have a four-year active life and a 10-year life to the partnership.
This fund’s network is by design global, which is a $6 trillion global opportunity. Everywhere you turn you don’t just have to innovate, you have to innovate at scale and that always means in partnership with others. Those are important lessons and they are part of the advice we bring to the table for this new effort.
This is not just energy investing 2.0. It’s a bespoke, purposeful mission and fund, which is going to take the learnings from the last decade’s worth of work and apply them to this ever larger and pressing opportunity.
This fund is meant to be a different model for investing. There’s a long timeline and the freedom to take greater risks, there will be certain criteria that must be met and decisions will be driven by science. How else is this investment model different from the traditional model we see in venture funding?
This is an investor-led fund rather than having passive institutional investors. This is a fund where I believe every limited partner is an executive who has built a substantial new business or disrupted a major new market. The investors are not going to operate the fund, but Bill Gates who is chairman of the board, and the board members, and investors are going to be very involved in the strategies and the activities of the fund itself. And that’s unusual and good.
Is there a specific energy innovation category that you find compelling?
I find the electrification of transportation enabled by battery breakthroughs the most compelling—real battery breakthroughs.
If we could triple the energy density of batteries, we would be cutting their costs by one third of what they are today. If you increase the energy density by three times it also means you only have to haul around one third as much battery.
Suddenly electric vehicles are no more expensive and no more costly to build, own, or operate than internal combustion-powered vehicles. And then they displace the internal combustion engines in India and in China.
That could happen rapidly and it could be a Moore’s law-like breakthrough. We all take Moore’s law for granted and kind of assume it exists. But remember every year now for 50 years the cost and the performance of integrated electronics has improved 40% a year; that’s a doubling every two years. For batteries, the pace we’ve been on is 1% or 2% per year. We’re looking for a 300% improvement, and if we can get that we know it’s a really big deal.
That’s just one of maybe a dozen or so exciting areas. There’s no guarantee that we’re going to find innovation in these areas. Before we set out to find them, before we declare to the world what those are, we’re going through a very quantitative process to understand what ought to be possible from the physics, from the biology, from the reality of where we are and where we could get to, and let’s try to achieve that possible goal.
Are there enough companies out there—that you know of—that would potentially qualify for this fund and have a breakthrough technology?
If I could just modify your question a little bit. We’re not just looking companies; we’re also looking for innovators, research teams, scientists, labs, and universities. So yes I believe there is a shortage of funding and there’s an abundance of ideas. Ideas are relatively easy. It’s the execution that’s everything. Translating these ideas into products that are economical and reliable and can be scaled, that’s really going to be the hard part of all of this.
There is not enough patient risk-welcoming capital or funding out there. I’m anticipating the existence of breakthroughs is going to inspire others to be part of a whole funding ecosystem from co-investors in the early stages to larger funds and sovereign wealth funds that want to fund scale when risk is removed.
The global energy market is about $6 trillion. Our energy needs globally are going to grow about 50% between now and 2040. This is the mother of all markets. It’s a very large opportunity
I was struck by a line in Bill Gates’ post about the venture fund that reminded me of something you said during your 2007 TED talk that “policy matters” in the fight against climate change. How will the incoming president, who appears to have a different view on climate change, impact energy and environmental policy in the U.S.?
I don’t leap to the conclusion that funding for innovation and research in energy or any technology is going to be at risk in this administration.
They have very bold plans to invest $1 trillion in infrastructure in the U.S. and the important part of that infrastructure investment, I believe, is our nation’s energy distribution and our overall energy infrastructure. So, let’s wait and see.
The president-elect has generally stacked out a position that the EPA is harmful to growth in the U.S. and I expect there will be a lot of changes in that agency. But I don’t know what they’ll be.
I’m keeping an open mind and being very watchful. It’s a great question, I just don’t know the answer.
Is there a role for the Breakthrough Energy Coalition to engage with Congress?
We will actively engage with governments to increase R&D funding for energy innovation and that is, at the moment, where we will stop.
Ventures and businesses that we invest in, they’ll advocate for all kinds of energy policy. Policy matters, it’s really very important. But the BEC is not a policy advocacy organization; it’s an innovation organization.
One of the biggest breakthroughs has been the collective cost-down curve of solar, wind, and lithium-ion. Ten years ago, new power generation capacity in the U.S. was 90% fossil-fuel based. Because of these cost-down curves, 75% of new power generation last year was from renewable sources.
Companies like Proterra have proven that electric can be the most cost effective way to travel in urban cities. Cities like Seattle, Los Angeles, and Philadelphia are choosing Proterra because it is the cheapest cost per mile of any mode of transport and has zero local emissions.
By having record pre-orders and outselling every other car company in their class, companies like Tesla have proven that electric cars can be the most desirable.
Another category of breakthroughs is in the application of emerging technologies like artificial intelligence and big data analytics to traditional industries to improve energy and resource utilization. Efficiency is the low hanging fruit. Companies like Nest, Opower, OSISoft, and Cenergistic are delivering meaningful reductions of energy consumption—up to 30% in some cases— without compromise and at a very large scale.