For each major breakthrough in addressing carbon emissions, there has been a “pioneer that drove the innovation,” Khosla said at Fortune’s Global Sustainability Forum on Thursday. “If you look at electric vehicles, it wasn’t General Motors or Volkswagen that made society believe EVs were possible. Elon Musk almost single-handedly did it, and then everybody else followed.” 

It’s not Big Business or governments that are driving innovation, but “it’s entrepreneurs and instigators that make the difference,” he said. And VCs play a role in helping them do so. 

VC investments in companies addressing climate change have skyrocketed in recent years. In 2021 alone, investors pumped $37 billion into climate tech companies, according to HolonIQ. That’s more than the combined funds from 2006 to 2011, or the first wave of big climate tech investments. 

Last year, VCs nearly doubled their funding to $70.1 billion, representing 16% of the total, HolonIQ reported. But in 2023, the flow of money to climate tech companies is more a trickle than a flood. Despite continued demand for these technologies and a ticking clock on climate change, investments were down 40% to $13.1 billion in the first half of the year, according to a report by Climate Tech VC. 

“Any area of investing, not just venture, goes in and out of fashion,” Khosla said during Thursday’s forum in an online conversation with journalist Molly Wood. “Unfortunately, investors bounce between fear and greed. Those are the only two walls they know.” 

Other speakers at the Global Sustainability Forum on Thursday included Michael Regan, 16th administrator of the U.S. Environmental Protection Agency; Jon Chorley, chief sustainability officer at Oracle; and Andre Argenton, Dow’s vice president of environment, health, and safety, and chief sustainability officer.

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Khosla, one of the cofounders of Silicon Valley pioneer Sun Microsystems, said that VCs should be taking more risks on climate tech startups. “They have a high probability of failure but very high payoffs when they work.” 

With four decades of VC experience—two of which he spent at his own firm, Khosla Ventures—Khosla has found a niche in making high-risk, high-reward investments in climate technology. His business has more than a dozen companies in its climate tech portfolio, including Impossible Foods, known for its plant-based meat alternatives; Fortera, which makes low-carbon cement for the construction industry; and LanzaTech, the company that turns pollution into sustainable fuel. Khosla Ventures has also invested in DoorDash, Stripe, and OpenAI.

“There’s probably a dozen major areas of large carbon emissions that we need to solve” but also only a dozen key technologies or entrepreneurs making breakthroughs, he said. In addition to Musk in electric vehicles, Bob Mumgaard has revolutionized fusion technology, he said.

Mumgaard is the cofounder and CEO of Commonwealth Fusion Systems, in which Khosla invested in 2019. The company is developing a machine that can produce carbon-free energy from nuclear fusion, or the pressing together of hydrogen atoms, which can create energy and heat. The technology has the potential to replace fossil fuels. 

What Mumgaard has done in three years “for probably under $100 million” is more than what 35 countries have accomplished with $22 billion and 35 years, Khosla said, referring to the ITER fusion project. Fusion technology isn’t perfect yet. Scientists say commercialization is still decades away, and there’s more work to be done in reducing costs, but Khosla credits progress in the space to Mumgaard. “Because Bob Mumgaard got started, now there’s a dozen fusion projects funded,” he said. 

Of the dozen areas climate technologists need to address, they only have solutions to three or four of them, he said. “We need entrepreneurs, and what I call ‘instigators of change’ in these other areas” like steel production, he said. “And that is what venture capitalists should fund.”