From Dot-Com to Watt-Com: Start-Up Fervor Shifts to Energy in Silicon Valley
After venture capitalists have begun pouring billions into energy-related start-ups, interest is now spilling over to many others in Silicon Valley. Lawyers, accountants and business school graduates all want a piece of the energy pie.
Silicon Valleys dot-com era may be giving way to the watt-com era.
The dawn of a new era: Silicon Valley is discovering renewable energy as a business opportunity.
It is no secret that venture capitalists have begun pouring billions into energy-related start-ups with names like SunPower, Nanosolar and Lilliputian Systems.
But that interest is now spilling over to many others in Silicon Valley -- lawyers, accountants, recruiters and publicists, all developing energy-oriented practices to cater to the cause.
The best and the brightest from leading business schools are pelting energy start-ups with résumés. And, of course, there are entrepreneurs from all backgrounds -- but especially former dot-commers -- who express a sense of wonder and purpose at the thought of transforming the $1 trillion domestic energy market while saving the planet.
Its like 1996, said Andrew Beebe, one of the remade Internet entrepreneurs. In the boom, he ran Bigstep.com, which helped small businesses sell online. Today, he is president of Energy Innovations, which makes low-cost solar panels. The Valley has found a new hot spot.
Mr. Beebe said the Valleys potential to generate change was vast. But he cautioned that a frenzy was mounting, the kind that could lead to overinvestment and poorly thought-out plans.
Weve started to see some of the bad side of the bubble activity starting to brew, Mr. Beebe said.
The energy boomlet is part of a broader rebound that is benefiting all kinds of start-ups, including plenty that are focused on the Web. But for many in Silicon Valley, high tech has given way to clean tech, the shorthand term for innovations that are energy-efficient and environmentally friendly. Less fashionable is green, a word that suggests a greater interest in the environment than in profit.
The similarities to past booms are obvious, but the Valley has always run in cycles. It is a kind of renewable gold rush, a wealth- and technology-creating principle that is always looking for something around which to organize.
In this case, the energy sector is not so distant from other Silicon Valley specialties as it might appear, say those involved in the new wave of start-ups. The same silicon used to make computer chips converts sunlight into electricity on solar panels, while the bioscience used to make new drugs can be employed to develop better ethanol processing.
More broadly, the participants here say their whole approach to building new companies and industries is easily transferable to the energy world. But some wonder whether this is just an echo of the excessive optimism of the Internet boom. And even those most involved in the trend say the size of the market opportunity in energy is matched by immense hurdles.
Starting a clean technology firm is not like starting an online do-it-yourself legal company, said Dan Whaley, chief executive of Climos, a San Francisco company that is developing organic processes to remove carbon from the atmosphere. Scientific credibility is the primary currency that drives the thing Im working on.
Just what that thing is, he would not specify. For competitive reasons, Mr. Whaley declined to get into details about his companys technology. His advisory board includes prominent scientists, among them his mother, Margaret Leinen, the head of geosciences for the National Science Foundation.
In the last Silicon Valley cycle, Mr. Whaleys help came from his father. In 1994, he did some of the early work from his fathers living room on GetThere.com, a travel site. It went public in 1999 and was bought by Sabre for $750 million in 2000.
This time around, entrepreneurs say they are not expecting such quick returns. In the Internet boom, the mantra was to change the world and get rich quick. This time, given the size and scope of the energy market, the idea is to change the world and get even richer -- but somewhat more slowly.
Those drawn to the alternative-energy industry say that they need time to understand the energy technology, and to turn ideas into solid companies. After all, in contrast to the Internet boom, this time the companies will need actual manufactured products and customers.
There are real business models and real products to be sold -- established markets and growing economics, said George Basile, who has a doctorate in biophysics from the University of California, Berkeley and specializes in energy issues.
Mr. Basile has just stepped into the fray himself. In January, he became the executive adviser for energy issues at Bite Communications, a San Francisco public relations firm with scores of technology clients that is now working to attract energy start-ups.
The sudden interest of lawyers, accountants and other members of the wider Valley ecosystem strikes some as opportunistic.
Theres a large amount of bandwagon-jumping right now, said Mark Hampton, chief executive of Blanc & Otus, a technology-oriented public relations firm whose clients have included TiVo, Sybase and Compaq. Still, he understands the interest of relative newcomers: Theres a huge opportunity.
They are all, plainly, following the money. In the first three quarters of 2006, venture capital firms put $474 million into a broad range of Silicon Valley start-ups in energy storage, generation and efficiency, according to Cleantech Venture Network, an industry trade group. Energy was by far the fastest-growing area of interest, and the amount was on par with what was put into telecommunications and biotechnology.
Yet the amount of money involved is still relatively small compared with the boom years. Over all, venture funding last year was still less than a third of the nearly $34 billion venture capitalists invested in the region in 2000, the peak of the bubble, according to the Center for the Continuing Study of the California Economy, based in Palo Alto.
This is not 2000. It doesnt feel like 2000 on the street, said Stephen Levy, the centers director. But, he said, theres no doubt theres a buzz.
Mr. Levy said that Silicon Valley was getting a lift from the publics interest in finding energy sources and from government involvement in creating subsidies and policies that promote such sources. Still, he said, the ventures are clearly risky.
Well have a sense very quickly -- within two to four years -- whether any of this venture capital has produced any products or services that are market-worthy, Mr. Levy said.
Apart from the profit motive, many here say they are driven by more unselfish concerns: cleaning up the atmosphere and creating energy independence for the United States. One of the phrases heard most often in the industry is: Do well by doing good. Al Gore, with his warnings of global warming, has been a Valley darling of late.
The résumés Im getting now are almost identical to the ones I got seven years ago for CarsDirect.com, said Larry Gross, chief executive of Altra , a company he founded in Los Angeles that is producing ethanol and developing fuels made from plants. The quality, the schools, the work experience, the enthusiasm for wanting to fix something.
Mr. Gross in 1991 helped found Knowledge Adventure, which made educational software, making him one of the many tech alumni in the energy world. For that company, he said he attracted around $20 million in venture capital; he has received $245 million for Altra. Mr. Gross said investors and entrepreneurs are drawn to energy by what drew them to hardware and software: the chance for huge growth in volatile markets.
Mr. Gross is the brother of Bill Gross, a technology-era icon whose business incubator Idealab spawned many successful start-ups, including Citysearch and WeddingChannel. Bill Gross is now chief executive of Energy Innovations, the solar panel start-up based in Pasadena, Calif., with Mr. Beebe as president.
Mr. Beebe said there were profound similarities between the Internet boom and the miniboom in energy. For one, he said, just as the Internet promised to decentralize computing and put control in the hands of users, the Silicon Valley version of energy innovation intends to decentralize the industry by making power generation more local -- like solar panels on rooftops.
In 1998, Mr. Beebe was a co-founder of Bigstep and raised $75 million in venture funding. At its peak, the company had 150 employees, with most of them laid off during the bust. The company was later sold for less money than it raised -- hardly a dot-com success. So does Mr. Beebe have the track record to make a solar energy company profitable?
I face that question on a regular basis, he said. Only my actions will be able to answer it. But he added that he felt confident about the political and market conditions for energy start-ups. He said the entrenched oil, coal and gas companies could not ultimately compete with the more efficient and environmentally friendly concepts Silicon Valley envisions.
The idea of them turning a supertanker is an apt analogy, he said. They cannot take us over, they can only try to resist.
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