The news marked the largest cleantech-dedicated fund by a single venture firm since 2007. It also marked the first time Khosla Ventures, founded in 2004 by Sun Microsystems co-founder Vinod Khosla, has raised commitments from outside investors. Previously, the Menlo Park, Calif.-based venture firm had invested hundreds of millions of dollars of Khosla’s own money in startups.
The firm’s two new funds, both over-subscribed, include a $750 million fund for early and mid-stage startups and a $250 million seed stage fund for high-risk ventures spawned at universities.
The California Public Employees‘ Retirement System committed $60 million to the seed fund, 75% of which will invest in cleantech and the remaining in information technology—and $200 million to Khosla’s larger fund. “The fact that they received money from CalPERS is a vote of confidence,” said Dallas Kachan, managing director of industry research and consulting firm The Cleantech Group. “CalPERS believes enough in the Vinod Khosla brand that they would like to formally ally themselves with it. It is further vindication that very important sources of capital feel that we are also past the worst in clean technology investment.”
Principals of the seed fund include Pierre Lamond, an engineer with a long Silicon Valley track record. He co-founded National Semiconductor, worked at Cisco Systems, and chaired several large tech companies—including Cypress Semiconductor and Redback Networks. He joined Khosla in March from Sequoia Capital. Khosla also recently hired as partners, Gideon Yu, former CFO for Facebook, and Jim Kim, previously a senior partner with CMEA Capital.
Even though he’s pulled off the biggest first-time fund-raising efforts since the boom days of 1999, Khosla’s investments will be small—$2 million a piece from the seed fund, and $5 million to $15 million from the main fund. Khosla calls these “science experiments” and has said several times that it’s the way venture capital should be approached.
Khosla, who was an early backer of biofuels, says that he is more interested in uncovering technology breakthroughs than in latching onto the latest green trend.
“Things that are too much in fashion are things that I would shy away from,” he said in an interview. “Whatever the press calls hot are areas that I’m less interested in.”
Khosla’s cleantech investments include solar thermal company Ausra, geothermal company AltaRock Energy and biofuels makers Mascoma, Coskata, Range Fuels and Verenium.
Altarock, which is drilling in Northern California to extract heat from hot bedrock for geothermal energy, has had its project delayed while it’s under review by the U.S. Department of Energy and the Bureau of Land Management.
This year has been difficult for venture investors, who have been slow to put money into new companies as the recession has taken hold and firms have had trouble achieving liquidity in a sluggish market for IPOs and acquisitions.
“I don’t read a lot into it,” Khosla said. “In venture capital, the story is always a long-term story. Our investors are people who take a long-term view and like people who are doing things in areas where there aren’t as many people.” —Deborah Gage. Nichola Groom and Peter Henderson from Reuters contributed to this report.