MaSSSoftech

The Silicon Valley venture capital firm will finance early and mid-stage clean energy and information technology companies as well as high-risk 'science experiments.'
In a sign that green technology investing is bouncing back, Silicon Valley venture capital firm Khosla Ventures said Tuesday that it had raised $1.1 billion to spur development of renewable energy and other clean technologies.

It is the biggest first-time fund in a decade and comes as venture capital investment in green technology is just beginning to recover from a precipitous fall prompted by the global economic collapse last fall.

In the first half of the year, investments in green tech plunged to $513 million from $2 billion in the first six months of 2008, according to a survey by PricewaterhouseCoopers.

But Vinod Khosla, founder of Khosla Ventures in Menlo Park, Calif., and a leading green tech guru, has managed to raise an $800-million fund to invest in early and mid-stage clean energy and information technology companies as well as a $275-million fund to finance what he called high-risk "science experiments" that may exist only in a university laboratory.

"There's an opportunity basically where technology innovation changes economics," Khosla said. "In our business you can't get in and out when the markets are bad. In some sense, when most people aren't investing, it's a good time to invest."

Khosla has deep roots in funding tech companies. He is a co-founder of Sun Microsystems Inc. and a former partner at Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.

For his latest round, he won investments from the California Public Employees' Retirement System, the nation's largest pension fund, which put $200 million into the bigger fund and $60 million into the high-risk fund. About two-thirds of the investments will be devoted to green tech, with the remainder invested in more traditional technology firms.

"We think it's a very significant milestone," said Sheeraz Haji of Cleantech Group, a San Francisco green tech research, events and advisory firm. "This is the first time Vinod has taken outside capital, and he is certainly one of the early adopters and visionaries. The fact that an investor like CalPERS is stepping up is a good sign."

Since 2004, Khosla and his partners have invested their own money in some three dozen green-tech companies, such as power developers, biofuels start-ups and firms involved in energy efficiency, water, plastics and building materials.

The firm's portfolio includes such companies as EcoMotors, a Troy, Mich., start-up that is developing a highly efficient internal combustion engine, and Soladigm, a Santa Rosa, Calif., company creating "next-generation green building solutions."

"I like to call it 'main tech,' not clean tech," Khosla said. "We're doing bioplastics, lighting, engines, water and air conditioning -- almost anything that can be made renewable, sustainable, more efficient and cheaper."

The chance to invest in a broad-based portfolio was attractive to CalPERS.

"Vinod Khosla's opportunity set is larger than anyone else in the business because it goes beyond alternative energy to materials, water and other areas," said CalPERS spokesman Clark McKinley. "There's high risk, but high return. Some companies won't pan out, but there could be great returns if he's able to create the next Exxon of the alternative energy field or the next great concrete company."

Tim Carey, leader of PricewaterhouseCoopers' U.S. clean tech practice, said the size of Khosla Ventures' new funds indicated that the definition of green tech was expanding beyond solar energy and biofuels.

"There's a lot of innovation out there and investors are looking for the next big wave: energy efficiency, carbon capture, the smart grid," he said.