VantagePoint's Alan Salzman: Cleantech startups will be bigger than Google, Cisco, Amgen

Why clean technology? Why now?

If there's one person that can answer that question, it's Alan Salzman.

The co-founder, CEO and managing partner for VantagePoint Venture Partners, one of the biggest venture capital firms in the cleantech/greentech sector, Salzman oversees the nation's largest cleantech investment team.

He also manages a portfolio of startups that reads like a who's who of the industry, from solar firms BrightSource and MiaSolé to biofuels outfits Solazyme and Cobalt to LED maker Bridgelux and electric car maker Tesla Motors.

You might liken him to the skipper of the Good Ship Cleantech.

I spoke with Salzman last week about the state of the industry and his firm's role in it. Here's what he had to say.

SmartPlanet: We spent the morning at a renewable energy conference, where several leaders discussed their place in the growing cleantech industry. What is VantagePoint's role?

Alan Salzman: It's always interesting at these sessions because they take on kind of a gloomy tone. 'We're screwed' and 'How long before we're dead?'

We have a couple of big macro themes we believe in. One, at the highest level, is to invest in the inevitable. We can all sit around and, with a relatively high degree of certainty, predict where we're going to be. We may disagree on the time frame, but we have no doubt that all of lighting, for example, switches over to solid-state lighting. We have no doubt that all of vehicular transport switches over to electrical drivetrains. We have no doubt that we're going to see the predominant source of electricity move to renewables. And so on. And the only question is, how long does it take to get there? But I think few kids or grand-kids are not going to be driving electric cars.

The reason for these certainties is, I think, the second part of our thesis. And that is: what we've seen and learned in the past 30 years in Silicon Valley is that technology makes things cheaper. And we all know from our personal experience lots of examples of that occurring. And so why wouldn't that be the case in clean technology? Our answer is, it's absolutely the same thing. Solar photovoltaics and plasma TVs look to us about the same, and we don't see how other people see it any other way. The quality has gone up over the last six of seven years -- the same thing happens in PV.

We also have a pretty optimistic view of where we're going. The reason we think these are going to be the inevitable result and [that] they'll be cheaper or better are going to be interlinked. Things scale because they're cheaper and better.

SmartPlanet: You mentioned solid-state lighting. Most people complain about the high price of LED bulbs on the market today. Is it just a matter of time before the price comes down?

AS: That's exactly right. Before you can be 15, you have to be 10. Before your 10th birthday, you have to have a seventh. You can't birth a kid if you're fully grown. We call that the learning curve. We get smarter and better at stuff once we've cracked the code the first time.

If I take it to Tesla for a second...what Tesla has done has been to serve as a catalyst for the rest of the industry to accelerate its conversion to EVs. I think there is a direct correlation between the Roadster hitting the road roughly three years ago and the [Nissan] Leaf at sub-$25,000 in California hitting the road less than three and a half years later, which in automotive time is light speed.

SmartPlanet: You're bringing a Silicon Valley timetable to the auto industry.

AS: The telecommunications industry wasn't used to [Silicon Valley timetables] either. Think of the phone you had when you were a baby: it largely was unchanged for 20 years. The telephone, if you will, didn't change from 1960 to 1990.

SmartPlanet: Is that it, then? Has the press and public framed Tesla Motors incorrectly because of its $100,000 Roadster?

AS: Tesla is not about a toy for rich guys. If you make a car by hand in batches of a couple of thousand a year, they cost a lot of money. Whether it's a Ferrari -- or if Ford Motor Company made its Taurus in batches of 200 cars a year -- I guarantee you they would cost $800,000 each.

Any time you have a small batch hand-crafted car, of course they cost a lot of money.

SmartPlanet: So, if I understand you correctly, you're saying it's a mistake to think the Tesla brand stands for a bespoke product.

AS: In some ways you can analogize a Tesla to the Apple II [personal computer] -- it's the first regular electric car. It's not the last.

The first flat-screen TVs that came out 10 years ago were $20,000. You would have said, 'There's no future in this.' When the first cell phones came out, in today's dollars they were $8,000 and the service was crappy and they cost $8 a minute. Other than Michael Douglas in Wall Street, who's going to use these things?

If you just look at the first instantiation of something and say well, 'What's the market for an $8,000 cell phone?', you've missed the point. There's never going to be a big market for a $110,000 car. Where the volume is is at $20,000.

What I think is remarkable if you step back is, it took less than three years to go from a $100,000 hand-built specialty car to a $25,000 mass-produced car. That is incredibly fast.

We invested in Tesla because we convinced ourselves that this is doable. Once you do that, well, who in their right mind wouldn't? Once you start making them in units of 100,000 per year, we know what happens: you whack the hell out of the price.

We start with: what are the inevitables? Can we, through technology, radically improve what is currently the accepted norm? And I think part of what distinguishes VantagePoint's approach is that we take on, and delight in taking on, the very ambitious transformative projects.

If you look at the projects we've taken on, we were the first investors -- the only ones of consequence -- that signed on to back Tesla. Back green [tech]? BrightSource. MiaSolé.

If you look through our portfolio, you'll be struck by [the evidence that] these are the leading guys taking on big, hairy projects.

SmartPlanet: What about wind power? The only firm in your portfolio is FloDesign, which makes turbines.

AS: Wind has not been a focus at all for us because it has been a commodity business. We look for businesses where there is going to be a technological transformation rather than simply a financing opportunity.

Wind is about cost of capital. There have been modest technological innovations in wind in the last decade. The areas that we look at in wind are new types of turbines or energy storage systems. But just doing wind project finance is not our thing. Private equity guys tend to be more focused on that stuff.

SmartPlanet: Several cleantech CEOs have expressed concern over the impact of government policy and a possible two-year gap in subsidies and tax incentives. How does that affect what you do?

AS: Capital availability that allows these companies to scale affects everyone in this industry. As capital is harder to access, its cost goes up, and it consumes more of management's time to round it up. We worry from a competitive viewpoint whether companies with government-assisted access to cheap capital is going to tilt the playing field in favor of others. And we worry that the vast extraordinary amounts of subsidizing in the system [for established technologies] dwarfs the amounts going to clean technologies.

The number one recipient of government loan guarantees in the next-gen company category is BrightSource -- they got roughly $1.5 billion. At the same time that was going on, there was $16 billion in loan guarantees going to nuclear power plants. And there's some $30 billion allocated for carbon capture and sequestration projects that no one thinks are going to work. If the [cleantech] poster child is a fraction [of all those funds], what are we talking about?

Tesla got a $500 million loan guarantee -- not a gift -- from the U.S. government. Correct me if I'm wrong, but didn't we just give GM $50 billion? Last time I checked in the innovation race between GM and Tesla, who do you think is winning? You've got to step back.

Some of the doom and gloom is people saying, 'We're fighting for crumbs' relative to others. Hell, we probably spend more on sugar subsidies than we spend on cleantech. Last time I checked, sugar's been around awhile.

The frustrating aspect is saying, the world is changing we know where it's going. Let's go there, it'll be a happy, better place for all of us. And it already has its proof points. If you can make gigawatts of electricity using sunshine in the desert, why are we still sending people down into coalmines to hack it out by hand, get black lung disease in the process, drag it to the surface, ship it on trucks...it's one step removed from gathering firewood when you want to cook dinner. And by the way, the residue kills you. What a great deal.

[Coal] kills people collecting it. It kills people making it. It kills people using it. Boy, we want to cling to that as long as possible.

At the same time, people are driving around in Leafs and Teslas. At the same time, [U.S. president Barack] Obama in his big oil spill speech doesn't say one word about electric cars.

SmartPlanet: What keeps you up most at night?

AS: Fortunately, it's more excitement than fear. I think we're at the early days of transforming the largest industries on the planet. And it's for the good of all of us, both from a health and well-being viewpoint, but also it's going to make stuff better and cheaper. I think that's really exciting.

There are stumbling blocks along the way. There's an established [system]. Incumbency never wants to change. There's a heavily regulated environment. It's not easy getting this technology to work. It's hard. It's risky.

If the prize is significant enough, than it's worth the effort. We think this is the granddaddy of all transformation. We think it is a tremendous opportunity to see the next set of Googles and Ciscos and Amgens emerge that will in fact be bigger than many of those companies, because the industries they're playing in are bigger.

And we think that it's important from a societal viewpoint that you embrace the future. We can all argue about the societal contributions of your cell phones playing Lady Gaga when somebody calls you. But I don't think anybody's going to argue against clean, inexpensive, nontoxic materials for the planet.

That's our point of view and we're sticking to it.

This post was originally published on Smartplanet.com