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September 06, 2009

Vinod Khosla ramps up bet on cleantech

bloggingbuyouts has an article on Vinod Khosla's two newly raised cleantech funds.
While other VCs have frowned on so-called science experiment investments that explored unproven and technically difficult technologies, Khosla sees these types of investments as a core function of venture capitalists that was somehow lost, according to the New York Times article. In addition, many Silicon Valley venture capitalists have turned their backs on cleantech investing, according to VentureBeat. Venture capitalists fear that cleantech companies generally require large amounts of startup capital. High-funding demands are a clear obstacle during a time of wholesale shrinkage in the VC sector.

For his part, Khosla has not shied away from cleantech to date and, rather, has poured his own money into his own private investment fund. In that still running fund, Khosla pledges profits to charities. In the present fund, Khosla is looking for pure profits and is accepting limited partners -- that is, outside money.

The $1.1 billion actually will go to two closely related funds. The larger is a $800 million fund that will place investments of $5 million to $15 million in more established technologies. The other is a fund of $275 million that will be used to make smaller investments of $2 million in earlier stage technology companies.The fund is the largest launched since 2007 and one of the largest ever launched for cleantech. Khosla and several partners have invested hundreds of millions of their own money in the fund, a point that was likely key in attracting outside investors.

Khosla's resolve is admirable, particularly in light of the dark winds sweeping the venture capital landscape and the economic difficulties facing many cleantech companies in the photovoltaic solar cell market and biofuels sectors. For sure, a billion bucks can pick a handful of winners, particularly when Khosla has the pick of the litter in cleantech startups due to the reticence of so many of his peers.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in