Venture Capitalists Hot On Energy

GENERIC: Alternative energy, wind, solar, power, natural, earth
With oil prices surging and increased talk of global warming, venture capitalists are straying from their traditional focus on computer technology and biotechnology to put increasing sums into alternative-energy companies.

Venture activity is way up in the past six months, with more energy companies presenting business plans to investors and more high-priced deals being done. Over the summer, four solar-energy companies attracted a stunning $60 million in a round of high-priced financings that generated the first whispers an investment bubble may be forming.

For venture capitalists, "it's a very nascent market," says Warren Weiss, general partner at Foundation Capital. "It almost reminds you of looking at the Internet market 10 years before (browser pioneer) Netscape" unleashed the dot-com gold rush, he says.

Weiss says that in the past 18 months his firm has made three energy investments in an attempt to identify where advances in technology — cheap, powerful chips, more capable software and broadband communications — will have an impact on the energy business.

"You couldn't do it 10 years ago," he says. "We think the market is ready."

Weiss is not the only one to decide the time is right. Many white-shoe venture firms have named energy specialists and written funding checks, including Kleiner Perkins Caufield & Byers and Mohr Davidow Ventures, which became one of the year's more active firms with its first three investments.

"We see a great market opportunity," says Erik Straser, general partner at Mohr Davidow, who studied the business for almost three years before getting involved. "There's lots of innovation."

Two of the firm's startups — Energy Innovations Inc. of Pasadena, Calif., and Nonosolar Inc. of Palo Alto — make solar cells while the third, Jadoo Power Systems Inc. of Folsom, California, makes fuel cells.

According to a recent survey, venture investments in alternative-energy companies jumped this year, although they remain a small slice of the overall business. Venture capitalists put $139.5 million into solar, wind and geothermal energy companies through the second quarter of the year, already surpassing the $95 million they spent in all of 2004, according to the National Venture Capital Association, Thomson Financial and PricewaterhouseCoopers.