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September 23, 2008, 8:52 am
What Bubble in Green Technology Investment?
By Claire Cain Miller
Green technology is a hot investment among venture capitalists in Silicon Valley, but is it too hot?

Some technology watchers have feared an investment bubble in the sector. Not so, say the venture capitalists, entrepreneurs, executives and bankers who back these ventures. (Are you surprised?)

In a survey released Tuesday by KPMG, the audit, tax and advisory firm, two-thirds of those polled said that green technology investment is sustainable. Almost all said they expected venture capital for start-ups producing these technologies to continue to increase in 2009. Half predicted an increase of 20 percent or more over 2008 levels.

Venture capitalists who have traditionally focused on information technology have been investing billions of dollars in “clean technology.” In May, Kleiner Perkins Caufield and Byers, one of the top venture capital firms in Silicon Valley, announced that it had raised a $500 million Green Growth Fund and is also investing part of its eighth, $700 million fund in clean technology. John Doerr, a Kleiner partner who led the firm’s investment in Google, has been outspoken on climate change issues.

Khosla Ventures, the venture capital firm run by Vinod Khosla, has also been a prominent green technology investor, supporting technologies ranging from solar to carbon-negative cement to what Mr. Khosla calls “future fuels,” like energy that could be produced from trees or grass.

Though solar start-ups have received huge amounts of financing this year — thin-film solar companies alone have raised more than $800 million this summer — the KPMG survey found that only 10 percent of respondents expected that solar technology would receive the most funding over the next two years. More thought that energy storage technologies, like fuel cells and batteries, or clean coal and wind start-ups would rake in the most cash.

Still, 39 percent of venture capitalists said that solar would become the dominant clean-energy source over the next 20 years, while 27 percent predicted it would be nuclear and 18 percent predicted it would be wind.

The deal makers surveyed said the need for alternative energy would only grow — about half predicted that oil prices will not peak until after 2010.