Khosla: High on ethanol!
Date: Wednesday , February 28, 2007
“Since one fails often, address markets that make it worthwhile when one does succeed,” voiced Vinod Khosla to a rapt audience of over 500 including Venture Capitalists, IT heads and aspiring entrepreneurs. Speaking at The Indus Entrepreneurs (TiE) Bangalore Chapter, he was hinting his interests to the latest vogue in VC world: Alternative Energy. The co-founder of Sun Microsystems and founder of Khosla Ventures chose to focus on Solar Thermal Power as the point of discussion, stressing on its rising impact in day-to-day life. What would have otherwise been viewed with skepticism, enamored the audience with its VC and entrepreneurial insights.
Of late, investors have heightened their radars towards alternative energy start-ups and invested billions of dollars in areas like wind energy, solar power and bio-fuels. According to the National Venture Capital Association, VCs invested a total of $727 million into 39 alternative energy start-ups in 2006 compared to $195 million in 18 such firms for 2005. With the world’s rising dependence on fuel, it came as no surprise that more than a third of this funding went to technologies pertaining to the production of ethanol- an alternative to gasoline.
Khosla, one of the first supporters of ethanol-based ventures, was here propagating the bio-fuel as solution to the world’s oil addiction. Citing Brazil as an example, Khosla added that the production of fuel for cars from feedstock and crop waste would also serve as an answer to rising concern over global warming. Brazil was among the first countries to advocate ethanol as an alternative to fuel in cars. However, despite the lower price, people were hesitant to use ethanol, as its availability would be subjective to the place. The concept underwent a makeover when in 2003 Volkswagen introduced a hybrid car that would run on gasoline as well as ethanol. In the next three years, 80 percent of the cars there were running on ethanol.
What Volkswagen did was, work on an available option and make it plausible for the end user, something, Khosla believes, every new venture should aim for. Today Brazil consumes more than 16 billion liters of ethanol annually catering to 41 percent of total demand for transport fuel and 4.5 million such cars are already on the road in the United States. In the past, ethanol was made from corn, which wasn’t viable for the environment, but lately bioengineering has discovered methods to create ethanol from agricultural waste and bamboo plants. India being the world’s second largest producer of bamboo, after China, can adopt the practice to their benefit and address poverty and increase the farmer’s contribution in her GDP (a mere five percent of India’s total population contribute significantly to the GDP today). Presently 16-megawatt power plants are being planned in Assam that would be amongst the first to utilize bamboo for fuel and the State is banking to be self sufficient in energy within 10 years.
Further, Khosla went on to address solar and wind power—how a few million mirrors could actually light up the world. To put things into perspective, a recent study by two German scientists, Dr Gerhard Knies and Dr Franz Trieb, which calculated that covering just 0.5 percent of the world’s hot deserts with a technology called concentrated solar power (CSP) would provide the world’s entire electricity needs. Khosla mentioned of certain solar power generating plants that were abandoned after the oil prices came down and needed investments to be re-started.
When questioned why the world was not looking into nuclear power as an alternative to energy, Khosla simply said: “it’s too expensive and time consuming”. Known for funding with small investments, Khosla stated that the lesser the investment, more room for experiments and mistakes and more innovation.
True to his style, Khosla answered every question posed by the audience who were thinking furiously by the end of the stimulating presentation. Be it from ‘how to solve India’s poverty,’ to ‘micro finance in India’ to ‘how do I teach my children to innovate’, the last one eliciting the most though provoking answer. “Never say ‘no’ to anybody who wants to try something new. Even if it means they are going to fail. If you have not failed enough then you are not trying to innovate.”
The serial VC credited for identifying evolving markets left Kleiner, Perkins, Caufield & Byers and founded Khosla Ventures to invest in the ethanol market. Khosla Ventures has invested in a few ethanol-based companies including Mascoma that is doing R&D on ethanol production and a more recent $225 million funding to build an ethanol plant in Treutlon Country—the first commercial cellulosic factory in the United States.