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Guest Blogger Bob Metcalfe on Polaris and Enertech Investing

May 15, 2006

vcmike

Polaris recently invested in a cool MIT spin out called Green Fuel.

My partner Bob Metcalfe led the investment and wrote the following post:

ENERTECH, POLARIS, MIT, AND THE COMING ENERGY BUBBLE

By Bob Metcalfe '68, Polaris Venture Partners

May 15, 2006

——————————————-

GreenFuel Technologies Corporation [www.greenfuelonline.com] announced last month that it had received a $6.8 million investment from Polaris Venture Partners [www.polarisventures.com]. GreenFuel went on to brag that I, a has-been Internet engineer-entrepreneur and apprentice general partner, joined GreenFuel's board.Handling the surprising number of inquiries sparked by GreenFuel's announcement, I admitted to reporters that GreenFuel was Polaris' FIRST energy investment. I realize now that admitting this was a mistake, in fact several mistakes rolled into one.

First off, several reporters turned hostile after not listening carefully and thinking I said Polaris is a pioneer in energy investing. No. Ahead of us are many investors who have been specializing in energy for decades. And there are even my Silicon Valley friends, for example venture capitalists Vinod Khosla [www.khoslaventures.com] and Tim Draper [www.dfj.com], who are ahead of Polaris and me in energy investing. Draper Fisher Jurvetson in fact led the GreenFuel financing round that Polaris joined in April. So, please, I did not say that Polaris is the first venture capitalist to invest in energy. What I said was that GreenFuel is Polaris' first energy investment.GreenFuel, by the way, is cool. The MIT spin-off is deploying solar bioreactors that remove global-warming carbon dioxide from power plant flue gases by bubbling them through sun-drenched algae slurries that are harvested daily to produce biodiesel and ethanol, thereby helping save the world with cheap and clean energy. OK?

Well, not OK. Clarifying my first mistake led to a second. A couple of reporters followed up by asking whether Polaris and I are turning to cool energy start-ups because, now that the Internet Bubble has burst, there are no more good investment opportunities in infotech. No. Polaris is a diversified venture investing partnership. We just raised $1 billion into our 5th venture fund and plan to continue investing in infotech, biotech, nanotech, … and now also, starting with GreenFuel, in what I call ENERTECH. OK?

Well, not OK. It turns out, as I learned at our first partners meeting after the GreenFuel coverage, Polaris made enertech investments before GreenFuel. The best example is another cool company called Athenix [www.athenixcorp.com], which provides genes and enzymes for the bioconversion of biomass, like corn stover, straw, and dried grains, into biofuels.And then I looked at the ENERGY relevance of the five other Polaris-backed start-ups on whose boards I serve: Ember, SiCortex, Paratek, Narad, and Mintera.

Ember [www.ember.com] provides milliwatt semiconductor radios and networking software for embedded microcontrollers, many of which are used in residential, commercial, and industrial energy (HVAC and lighting) management systems.SiCortex [www.sicortex.com] is developing Linux superclusters that will improve the energy efficiency of scientific computing by a factor of 100 — two orders of magnitude.Paratek [

www.paratek.com] is developing tunable ceramic radio frequency components for cellphones that will increase their range and energy efficiency, and might as much as double their battery life.The last two of my "energy" investments, Narad and Mintera, are helping build the future broadband Internet, enabling substitutions of cheap and clean COMMUNICATION for expensive and environmentally damaging TRANSPORTATION.

Narad [www.naradnetworks.com] provides equipment to cable television operators so they can offer gigabit switched Ethernet services for broadband Internet access.Mintera [www.mintera.com] provides equipment to telephone, television, and Internet carriers for 40-gigabit-per-second (40Gbps) ultra-long-haul DWDM optical transport.What better way to ease the world's looming energy crisis than reducing demand for fossil guzzling and carbon emitting commuting and other unpleasant forms of travel?

So, no, GreenFuel is not the first energy investment made by Polaris and me.

Which leads to fixing yet another mistake. After the GreenFuel announcement, I was buried in business plans from companies developing new energy reserves or power generating plants of various kinds around the world. While many of these are promising energy investments, they are mostly not right for Polaris and especially me. Saying we invest in "energy" is a problem.

So, after consultation with experts, I say I am not looking for "energy" investments or "renewables" investments or "cleantech" investments, but for Boston-based early-stage ENERTECH investments, like GreenFuel. Short for energy technology, "enertech" also poetically extends the familiar family of investment categories: infotech, biotech, nanotech, and now … enertech.

My recent interest in enertech was provoked by Susan Hockfield, MIT's new president. She announced last year that energy would be a major focus of MIT's formidable innovation machine. The MIT Energy Research Council that President Hockfield established last year just issued its first report:

web.mit.edu/newsoffice/2006/energy-report-0503.html

Last week was Energy Week at MIT:

mitenergyconference.com/e_week.htm

I'm signed up to play my role in President Hockfield's initiative, as an enertech venture capitalist.

Fresh back from MIT's Energy Week, I'd like to say that MIT will soon save the world with cheap and clean energy. But, success is not assured.

Oil and gas seem to be running out, but if not running out, they sure are expensive these days. They mostly come from ungrateful regions of the world. Their burning releases pollutants including especially carbon dioxide (CO2), which is widely reported to cause global warming, more dangerous hurricanes, and rising oceans that will eventually turn Boston into Atlantis.

Coal is cheap and plentiful, but also dirtier, including much more CO2, and not ideal for cars and jets. Some folks think that coal needs urgently to be gasified.

Since all fossil fuels — oil, gas, coal — dump global-warming CO2 into our atmosphere, there is a lot of talk about "carbon sequestration," including pumping CO2 back into the ground to help get the oil out. This sounds to me a lot like burying nuclear wastes. Excuse me for mentioning that GreenFuel promises not to expensively sequester CO2, but to recycle it productively into biofuels.

Biofuels can be cheap and clean, but they also release CO2 when burned. On the other hand, they capture CO2 when grown. Ethanol is a coming thing.

Water and wind power are free of CO2, but among their other problems are despicable Democrats protecting family compound views across Nantucket Sound. OK, MIT is proposing to move wind farms into deeper water offshore over the horizon.

The United States has 104 nuclear reactors safely, cheaply, and cleanly (no CO2) producing 20% of our electricity. But, NO-NUKES Luddites have made it impossible to build new US reactors since 1975. This is an outrage. China and France, of all places, are moving ahead with nuclear. So should we. It's fascinating that so many global warming alarmists are also anti-nuke. It will be interesting to see how they work this out.

Which leaves solar power. Our Sun's nuclear fusion reactor — which daily taunts fusion researchers by flying across the sky — currently transmits to Earth enough energy in an hour to power the human race for a year. Solar power converters are now about 1% efficient, and there aren't very many, but promised breakthroughs abound. This explains why there is something of an investment bubble in solar, including GreenFuel, which uses photosynthesis to convert transmitted solar energy and recycled CO2 into biofuels.

Speaking of investment bubbles, a young woman at last Saturday's energy conference at MIT worried about investment bubbles in energy. She looked old enough to remember the bursting of the Internet Bubble, but not old enough to remember the sad state of computing-communications in 1976. Remembering those days, I have to say that energy today feels just like pre-Internet computing-communications in 1976.

So, I estimate it will take about three decades to get to THE energy bubble, which will make the last Internet Bubble look like a speed bump. We should look forward to it.

A lot of the people speaking at today's energy conferences are in for some big surprises, just like the people who worked at AT&T, IBM, and the FCC in 1976. If the world is to be saved by cheap and clean energy, many of these people, their rapacious monopolies, their politicians, their co-dependent activists, their captured regulators, their professors, and their conventional wisdoms will have to be cruelly swept aside by today's young scientists, engineers, entrepreneurs, and yes, enertech venture capitalists.

END

23 Comments

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  1. Michael Robinson #
    May 16, 2006

    Careful with that analogy.

    Computing-communications in 1976 had a significant productivity tailwind: Moore’s Law. Productivity increased as a roughly exponential function of development time.

    Enertech in 2006 has a significant productivity headwind: The Second Law of Thermodynamics.
    Productivity will increase as a roughly logorithmic function of development time.

    Furthermore, the source of excess investment returns is likewise inverted. In 1976, the overall economy had barely any communications-computing at all, and investments could reap excess returns due to increasing overall economic growth above what would otherwise occur. In 2006, the overall economy has plenty of cheap energy, and investments will reap excess returns due to mitigating the declines in overall economic growth that would otherwise occur.

    In the latter case, the aggregate potential “upside” is more tightly constrained.

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