One of Silicon Valley's greatest success stories increasingly resembles the venture firms that helped catapult it from a dorm room start-up to a $200 billion (€136 billion) superstar.
Internet giant Google frequently helps fund tech start-ups, like broadband company Current Communications or 3G mobile phone access provider Ubiquisys. It's also been a lucrative exit source for venture and private equity firms, as with its $3.1 billion purchase of DoubleClick, $1.65 billion acquisition of YouTube and $625 million deal for e-mail management company Postini.
But one of the newest initiatives from Google's $2 billion philanthropic arm is sure to increase its interaction – and, to an extent, competition – with its Silicon Valley neighbours. Dubbed RE>C, short for “renewable energy cheaper than coal”, the initiative aims to counteract climate change by lowering the cost of renewable energy sources so as to compete better with coal-powered electricity. In the process of attempting to better the environment, Google is also hoping to improve its own bottom line – as powering its servers and data facilities would become less expensive.
“We've reached the conclusion that if solar, wind, geothermal and other sources are going to really have their place in terms of climate change and energy security, they've got to be more competitive economically,” says Dan Reicher, Google.org's head of Climate and Energy Initiatives.
We want to help move these technologies through what has come to be known as the ‘Valley of Death’
The multi-faceted RE>C includes the establishment of a dedicated in-house research and development team. It will also advocate policy change – last year, for example, Reicher testified before the Senate Finance Committee regarding policy measures that would enhance clean energy investment. RE>C will endeavor to apply Google's own information tools, such as Google Earth or Google Maps, to the issue. And the company says it also plans to deploy “hundreds of millions of dollars” in Google capital in coming years via grants and investments.
“We are making investments, really, of two sorts,” Reicher explains. “One is investing in technology companies that offer some major improvements in how we produce electricity from renewables.”
Already, RE>C is working with two companies Google says have “promising scalable energy technologies”: eSolar, a Pasadena, California company focussed on solar thermal power that replaces a power plant's fuel with solar-produced heat; and Makani Power, an Alameda, California-based company developing high-altitude wind energy extraction technologies. Reicher says RE>C has a number of other deals in the pipeline, but none that can yet be disclosed.
The other main way in which Google will make investments is by backing high-risk projects that might not be as palatable to the traditional investment community.
“We wanted to play our money in ways that will really accelerate the kind of cost reductions that are critical, and in order to do that, we want to put it into both the technology investments and the project investments that are going to lead to those sorts of innovations,” Reicher says. “We tend to not want to have our money duplicate available resources; we want to put it in places where often the risks are higher.”
Google will mainly help finance pilot or first-of-a-kind energy infrastructure projects as opposed to backing established projects or technologies that are more proven and continue to scale.
“The traditional project finance world knows how to handle those once the risks are calibrated and can be understood by the investment community,” Reicher says. But “raising equity and debt for those first few, large-scale commercial projects can be extremely difficult, and we want to help move these technologies through what has come to be known as the ‘Valley of Death’”.
Reicher says this is one of the key features distinguishing Google from venture and private equity shops active in the cleantech or energy sectors, including The Carlyle Group, Goldman Sachs, Kleiner Perkins Caufield & Byers and Bessemer Venture Partners.
Google will be “investing through similar mechanisms, in some cases we might co-invest with traditional venture firms and companies”, he says. “[But] we have the ability to take on higher risk with our technology-focussed dollars than some VCs might.”
But the biggest differentiation, perhaps, lies in RE>C's main objective. “Our goal, first and foremost, is to lower the cost of renewable electricity,” Reicher says. “We obviously want to see returns on the dollars we invest, but the top priority, above the return on investment, is actually accelerating breakthroughs in lowering the cost of renewable electricity.”
We obviously want to see returns on the dollars we invest, but the top priority, above the return on investment, is actually accelerating breakthroughs in lowering the cost of renewable electricity
Google's tapping of Reicher to lead its climate change efforts is understandable, given his extensive policymaking and private equity experience in the renewable energy sector. He co-founded New Energy Capital, a clean energy-focussed private equity firm funded by the California State Teachers' Retirement System and Vantage Point Venture Partners; he was executive vice president of the US' oldest renewable energy project development firm, Northern Power; and for eight years during the Clinton administration, Reicher served as US Assistant Secretary of Energy for Energy Efficiency and Renewable Energy.
But RE>C is drawing on talent from across the Googleplex, the company's headquarters in Mountain View, California, and beyond.
“This is an initiative that cuts across all of Google,” Reicher says. “So we have strong capacity in our corporate development group, new business development group, in legal, in the engineering ranks … from due diligence to deal structuring to execution and oversight, we've got a variety of people who've joined our RE>C team who bring that expertise to bear.”
Meanwhile, RE>C is hiring engineers, business development and investment management professionals, among others, to augment core Google staff. And it's actively looking for investment opportunities in the geothermal, wind, and solar thermal power sectors, both in North America and abroad.
“We're open for business,” Reicher says. “We would love to hear from investors, from fund managers, from others who have ideas that might fit with our objectives. We are keen to collaborate … and keen to apply Google's tools to this problem and accelerate progress.”