The Next Generation of Venture Capital: Hot Ideas from Sand Hill Road
Tuesday, April 28, 2009 / 9:30 am - 10:45 am
   
   

Moderators
Kara Swisher, Co-Executive Editor, All Things Digital

Speakers
Alec Ellison, Co-Head of Investment Banking; Chairman, Technology, Media and Telecom Group, Jefferies & Company Inc.
Steve Jurvetson, Managing Director, Draper Fisher Jurvetson
Eric McAfee, Chairman, McAfee Capital
Ford Tamer, Operating Partner, Khosla Ventures

Electricity storage, alternative energy sources and efficient adaptations to existing processes are all areas attracting notice from this panel of venture capitalists. With bond financing still sluggish and the IPO market currently producing few deals, the best source of financing for new enterprises is the Department of Energy and other government sources — but that doesn't mean VCs have stopped looking for opportunities.

The trouble in the capital markets has not deterred Eric McAfee of McAfee Capital. He highlighted a $4.5 billion solar energy project that includes bond financing and funding from McAfee Capital of just under $50 million.

Solar, he says, is where the majority of VC money is going. This is reflected elsewhere in the world — especially in the Middle East, where according to McAfee, sovereign wealth funds are investing in the infrastructure because of limited remaining oil resources.

As other forms of generation advance, electricity has the potential to be the new basis of the world's transportation network. McAfee stressed, however, that investors need to be wary of what part of the value chain they choose to invest in. Specifically, there are many manufacturers of solar cells, and McAfee predicts that there will be a "bloodbath" as competition forces most of the 80 or so participants out of the market. The power in the value chain has moved to the utility customers. Ford Tamer of Khosla Ventures cautions that the "Google of solar" has not yet been invented and that there is not enough efficiency in the overall cost structure.

Shifting gears to the larger electrical network, the panel agreed that the U.S. government is in a unique position to spur investments in the historically neglected electrical infrastructure. Specifically, if national policy dictated a goal of building out a "smart grid" for electricity distribution, venture funding would flow toward producing energy-efficient retail goods.

Tamer stated that while some venture participants are looking to batteries as improvements that can meet electrical infrastructure needs, his firm is looking at other forms of electricity storage that can meet demand for 100 MW of storage.

Compatibility with a "smart grid" is also on Tamer's mind; he pointed out that Khosla is still looking at consumer-based devices like advanced adaptations of cell phones that include projector functions as well as uses that will replace traditional credit cards.

The panel also agreed that other forms of alternative energy are providing opportunities right now. Alec Ellison of Jefferies & Company proposed a move toward compressed natural gas as a clean technology with one-third of the emissions of traditional car fuels, cautioning that the costs of producing biofuels may be too high at the moment due to the costs of food for algae and other microbes. Tamer suggested that the technology exists for zero net emissions through the use of advanced geo-thermal techniques and bio crude oil production.

McAfee supported that effort, adding that McAfee Capital was looking at a biotech approach to creating fuels using only the cheap inputs of sunlight, carbon dioxide and seawater. Steve Jurvetson, of Draper Fisher Jurvetson, also echoed the drive toward biofuels through the use of advanced genomics in algae capable of constantly excreting oils.

The overall industry tone was reflected by Ellison, who said that although it is experiencing difficulty, the IPO market will return later this year, but not with very high volumes.

Jurvetson added that difficulties in the capital markets have dried up financing for ventures at a time when good ideas need funding. The result, he says, is that 2009 and 2010 will be fantastic vintage years, meaning that in a few years' time investors will look back and wish they had taken part.