Khosla hits up CalPERS for $640M

Vinod Khosla has a penchant for capital-intensive biofuel and ethanol companies, and now he has an A-list limited partner to help finance that predilection.

The $244 billion California Public Employees’ Retirement System is expected to commit up to $640 million to Khosla Ventures, according to two sources. The move will make CalPERS the only limited partner of Khosla Ventures other than Khosla, who has been investing from his own pocket since forming the firm in 2005.

The capital comes at a good time for Khosla. The Republican superstar venture capitalist is a billionaire, but he’s already spent a boatload of his own money on cellulosic ethanol production technology. For example, Broomfield, Colo.-based Range Fuels, which is building a large commercial ethanol plant in Georgia, has soaked up $163 million in capital so far, much of which has come from Khosla.

Khosla, a former general partner of Kleiner Perkins Caufield & Byers, is also an investor in the ethanol plant company Coskata Inc., which has raised more than $30 million in funding to date from Khosla, Globespan Technology Partners and Advanced Technology Ventures, among others); Cilion Inc., which is building six ethanol plants and has raised more than $200 million; and Mascoma, a cellulosic ethanol company that is looking to build a commercial-scale biorefinery in Michigan that uses wood as a feedstock.

Mascoma has not disclosed how much it has raised from investors, but last month it closed on a $61 million round from seven investors, including Khosla, pushing the capital it has raised to more than $100 million.

CalPERS’ bet on Khosla is not surprising, though. The state pension fund prides itself with working with the best investors in their respective fields and it has a long relationship with Khosla, who first visited CalPERS’ board with his pitch about six weeks ago.

In addition, CalPERS has been on the lookout for private equity opportunities in clean energy production and distribution for about two years, under the leadership of Chief Investment Officer Russell Read. (Read is scheduled to leave the state pension fund on June 30. But people close to CalPERS say his departure won’t have a material impact on its investment decisions).