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Business Impact

$1 Billion Looking for a Home

A Bill Gates-led initiative to fund breakthroughs in clean energy will find it challenging to identify enough great opportunities.

Microsoft founder Bill Gates announced on December 12 the formation of a $1 billion fund to finance breakthroughs in clean energy.

But raising the $1 billion is likely to be the easy part for Gates and the long list of technology and venture capital luminaries participating in what is called Breakthrough Energy Ventures. Finding the breakthroughs to finance will be a lot harder, Gates acknowledged in a phone call with reporters about the fund, which he will be chairing. “We need to scour the landscape and find some things that have been otherwise missed,” he said. “We’ll be limited by the great companies we find.”

The fund will certainly look far and wide. BEV has a list of 55 areas of potential interest—everything from next-generation nuclear fusion to reducing methane emissions from cows. It has divided them into five categories: electricity, agriculture, manufacturing, transportation, and building. The fund will look for investments that can work not only in developed markets like the U.S., but also in the poorer parts of the world, where energy needs are expected to grow much faster.

Which projects get funding will be determined by their prospects for reducing greenhouse-gas emissions and providing a financial return to investors over a 20-year time horizon, twice as long as the investment period for most venture capital funds. Investment decisions will be led by a professional staff that the board is still putting together. Investments are likely to be in the tens to hundreds of millions of dollars.

Clean energy technologies have struggled in recent years to provide a good return to venture investors. Moving from concept to commercial implementation is a long, expensive process, both because scaling up lab science to factory production is difficult and because support from large corporations has been lacking. Cheap natural gas has made the economics of new energy technologies especially challenging.

According to a recent study, venture capital firms spent over $25 billion funding clean-energy startups from 2006 to 2011—and lost over half the money.

Two of the best known of those investors, Vinod Khosla of Khosla Ventures and John Doerr of Kleiner Perkins Caufield & Byers, are board members of Gates’s new venture. Both argued that there is still great investment potential in this sector. Khosla said that such a large, new supply of funding will help lure smart scientists and technologists into the field, seeding a supply of new investing opportunities.

One source of new concepts in energy is fundamental research, typically undertaken with government support. But whether the U.S. government can be relied on to support the kind of basic research that could form the basis of companies eligible for future investment from BEV is not clear.

ARPA-E, a program of the U.S. Department of Energy that supports promising energy technologies not yet ready for private-sector investment, has seen some success with 45 projects having gone on to secure $1.25 billion in fresh investment from the private sector. But that’s a fraction of the 475 projects ARPA-E has funded altogether.

As part of the Paris climate accord, the Obama administration pledged the $6 billion of R&D funding for clean tech that it had earmarked. It’s uncertain whether such programs will continue under the Trump administration.

Gates and other board members acknowledged that ongoing U.S. federal support wasn’t guaranteed, but they argued that if the investments can be tied to jobs and positive economic impact, a successful argument might be made for them.

 

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