When venture capitalist Matthew Nordan steps onto the MIT campus, he's looking for the future all-stars of green energy. He knows he's got to find people with stamina, since investing in youngsters working on clean-tech solutions can take a decade or longer to pay off.
"It's like picking the NBA draft of 2020 by watching today's middle schoolers," says Nordan, the vice president of Venrock, a firm established in the 1930s as the Rockefellers' venture arm.
For investors in eco-power, there aren't quick flips like there are in, say, social media. "You don't have the Facebooks, the Instagrams," says William Aulet, director of the Martin Trust Center for MIT Entrepreneurship (and himself a former pro basketball player). Along with time, lots of money is needed to usher a green-energy investment from concept to market.
The average clean-tech company raises about $8 million in first-round financing (though a few flush start-ups skew that number high), says Nordan. Dot-coms, by comparison, launch for around $3 million, according to the National Venture Capital Association.
Investing in clean tech is risky too: The sector suffers a higher failure rate than other venture-backed industries, says Amy Francetic, director of the Clean Energy Trust, a Chicago nonprofit that finds seed money for start-ups.
Given all this, why would scouts spend time stalking colleges' environmental engineering clubs when they could be poaching from the computer-science department?
"Over history," Aulet says, "the greatest fortunes have been made in the energy sector."
In their hunt for the cash-worthiest clean-tech minds, VCs fund college research labs, judge business-pitching contests, and haunt hubs like MIT's Energy Club. That's where Nordan met an MBA candidate named Vanessa Green. "She backed me into a corner and gave me the pitch," Nordan recalls. "I'd already spent time around her and felt she could change the world." The result: He steered $1.8 million into the company that Green now helms, OnChip Power, which develops technologies to make LEDs more efficient.
Green remembers that many of her MIT peers had what she calls "changing-the-world goals." But she's quick to add that very few entrepreneurs who come out of the academic world try to start companies with planet-saving as their main focus.
Green, 30, who also cofounded the nonprofit Community Water Solutions to help water-treatment start-ups in developing countries, says she's driven by the idea of starting something that could make a difference. Still, she admits that she's not a pure altruist and that neither are most successful clean-tech entrepreneurs: "By the time they get VC funding, it's too late for that. If you take money, you know you've got to meet a bottom line."
Aulet agrees: "A VC's job is to return for their partners. They're not a church or a 501(c)(3). That's the government's job. That's other people's job."
At least one clean-tech investor, however, seems more interested in fixing the world than in cashing out, and his name dominates the field: Vinod Khosla. A cofounder of Sun Microsystems and a former partner at the prestigious VC firm Kleiner Perkins Caufield & Byers, Khosla shifted his investing focus from software, where he made his billions, to betting on green.
"Vinod has a vision of being able to make money on sustainability — but he's also idealistic and wants to make the world better," says Peter Meinhold, a founder of Gevo, which is developing ways to convert methane into methanol using biological methods. Meinhold attracted Khosla's attention — and millions of his dollars — while still a grad student at Caltech.
--reported by Avital Andrews / illustration by Timothy J. Reynolds