Carbon-conscious capitalists

Sand Hill Road may be where entrepreneurs flock on their fund-raising pilgrimages. But for environmentalists, it’s hardly a green Mecca.

Spanning seven miles between two major highways, the capital of venture capital is minimally served by public transit. The near-universal mode of transport remains auto to parking lot.

Other habits of venture capitalists also result in the spewing of considerable quantities of carbon into the atmosphere. A typical VC racks up frequent flier miles domestically and abroad, sacrifices countless trees in the disposal of uninspiring business plans, and occupies an office climate-controlled to the optimal degree.

Carbon footprints were of little concern back in the days when VCs thought of green principally as the color of a currency. But these days, as funds allocate ever-larger sums to clean technologies, venture capital firms are taking steps to try to curb, or at least offset, their detrimental effects on the environment.

Counting pages

“If you think about things like an annual LP meeting, you’re bringing investors from all over the country and the world,” says Rob Day, a principal with cleantech-focused @Ventures and author of a popular cleantech blog. “That has a major impact.”

Half of the environmental impact of a car is in the manufacturing, not the operation.”

Sanjay Wagle, Vice President, VantagePoint Venture Partners

Just how major? Mark Donohue, a managing partner at Expansion Capital, laid out a rough estimate last year in a speech to clean energy investors. Members of the San Francisco-based cleantech venture fund, which includes seven full-time employees, board members and several technology advisors, travel about 300,000 miles a year by air for work and cover another 50,000 miles by car. Add in other indirect causes of carbon dioxide (CO2) creation, like paper usage, and total output for Expansion Capital is about 215 metric tons of carbon.

To put those numbers in context, an individual needs a footprint of 1 metric ton or smaller in order to leave no harmful effect on the environment, says environmental author Mark Lynas. In fact, the average annual carbon footprint of an American is about 20 metric tons, according to the United Nations Statistics Division.

Lead by example

As venture firms vie to back promising first movers in the clean technology sector, CO2-conscious VCs are pushing fellow investors to set an example. A popular tactic involves purchasing voluntary “offsets” to neutralize the environmental impact of carbon emissions. Offset prices vary, but are currently about $10 a metric ton. The money goes mostly to planting trees, but sometimes to emission-reducing projects in developing countries. Expansion Capital spent about $1,200 for offsets in 2005.

VCs can also offset carbon guilt over the thousands of air miles they cover by saving gas getting home from the airport. In February, environmentally conscious car company PlanetTran launched a service to ferry frequent flyers to and from airports in San Francisco and Silicon Valley in a fleet of hybrid autos equipped with in-car WiFi.

Some are taking it further. Sanjay Wagle, vice president in the clean technology group at VantagePoint Venture Partners, made sure the only car he’s ever bought—a Toyota Prius hybrid—was previously used. “Half of the environmental impact of a car is in the manufacturing, not the operation,” he explains.

If you think about things like an annual LP meeting, you’re bringing investors from all over the country and the world.That has a major [environmental] impact.”

Rob Day, Principal, @Ventures

Wagle also spent $150 last year to offset his personal carbon footprint. “It’s counteracting the effects you had that resulted in carbon dioxide emissions to the atmosphere,” he says. “But there are also, of course, a lot of other effects to the environment from our economic activity that it does not address—toxic pollution, resource depletion, habitat destruction.”

Guilt Inc.

Still, offsets are a sensible first step and not terribly hard to track, says Craig Cuddeback, chief operating officer of Cleantech Venture Network, an industry group. Carbon footprint trackers have proliferated online, often adding in handy offset payment buttons. The website of non-profit Conservation International, for example, offers a carbon calculator that lets users tabulate the environmental impact of their power bills, driving and air travel and to make donations toward climate change mitigation projects.

For VCs, offsetting programs can do more than make participants feel like upstanding corporate citizens, says Day. Tracking the carbon footprint of everyday activities creates awareness of the wastefulness of many common business practices. It may not keep Silicon Valley VCs from jetting to India and China in pursuit of investments in rapidly industrializing markets. But looking back at the experience of implementing an offsetting program at a former employer, Day says, one can expect smaller changes in behavior:

“It really brought to people’s attention the fact that lights were being left on all night and computers were being left on,” he says.

Some private equity investors also see business opportunities in carbon offsets. GreenShift, a publicly traded company that backs private cleantech companies, invested $250,000 in TerraPass, a carbon offsetting program for drivers. Likewise, private equity fund FreshTracks Capital put $40,000 in seed funding into Bright Planet, which offers a credit card that allocates a portion of consumers’ purchases to clean energy projects. And buyout shop First Reserve Corp. spent an undisclosed amount in September for a leveraged buyout of Blue Source LLC, which bundles and sells offset packages.

Motives for investing in such businesses, however, probably have more to do with making money than saving the planet, says Ira Ehrenpreis, a cleantech investor and general partner at Technology Ventures. “I don’t see guilt driving venture capital behavior and investment one iota,” he says. “The reason to invest in the sector is the green—the green of driving profits for limited partners.”