What venture capitalists really think and what they say aren’t always the same thing. Intellectual excitement doesn’t always correspond with bets they place on the gambling tables of early stage investments.
Steve Jurvetson, from Draper Fisher Jurvetson, this week gave his overview of disruptive innovation in cleantech at the Always On Going Green conference in San Francisco. The man who famously invested $300,000 for 30% stake in Hotmail and made $250m for his VC firm when Microsoft bought the company two years later enthused this week about the “explosion of possibilities” of synthetic genetics in clean tech.
In August, one of Jurvetson’s portfolio companies, Genomatica, filed an S-1 form with the US Securities and Exchange Commission. The company uses computerized biotechnology modelling to design high-volume chemicals from renewable sources such as cellulosic biomass.
DFJ joined a consortium of investors including VantagePoint in raising $84 million in financing Genomatica. Tate & Lyle and Mitsubishi list among its partners.
Biofuels have bucked the downward clean tech IPO trend this year, not least because the oil incumbents have a huge interest in replacement fuels.
But apart from a scattering of clean energy plays, DFJ hasn’t done a great deal to promote itself as a VC leader in the field since 2008 – perhaps as the economic crisis matured into the great recession. DFJ’s portfolio of “companies that are changing the world!” reveal a curious lack of clean tech companies, with BrightSource, CoalTek and Tesla among the exceptions. Furthermore, DFJ’s star clean tech venture partner, Raj Atluru earlier this year announced his move to George Soros’s $1bn clean energy fund, Silver Lake Kraftwerk.
Although Jurvetson’s clean tech portfolio is fairly modest: Genomatica, Tesla and synthetic biology company Gen9, he made a robust case to claim that these investments were made in “disruptive innovations.”
He said: “First let’s define innovation: by innovation, I mean things that matter. Not sustaining innovation, but disruptive innovation – what will history books be written about. 20 years from now what will people remember as a seminal advance for the human race? And that will not be some marginal improvement buried deep in some large company. It’s always startups.”
In what sounded almost like a explanation for his scarcity of clean tech investments, he said: “If you think 20 years out, and ask what’s the most important company on the planet, it is not any company you could write down today. The most important company 20 years from now has not even been founded yet and doesn’t have a name. That’s a bit disconcerting for anyone who thinks about the trajectory of technology progress. That is always obvious in retrospective, eg Google Facebook didn’t exist 20 years ago. It’s not so obvious when you plan into the future.”
He argued that large companies by their very nature were incapable of being disruptive. “I’ll go further and say that no large companies does disruptive innovation in any sustained manner – not even Apple. If you think about the personal computer what have they done over the last 10 years in personal computing?”
Economic crises were an engine of change and could be an advantage for startups because it was cheaper to get established when markets are depressed, he said
“Two thirds of the Dow Industrial Average was formed during recession or the great depression. Companies tend … to build their business in more sustainable ways when they are formed in a down market. The odds might be in your favour. Why might this be?
“What is it about market disruptions and economic disruptions that make markets thrive? One example might there hasn’t been a car company IPO here since Henry Ford.
“But it got a little easier – Teslsa was able to buy a new manufacturing plant for pennies in the dollar. Who could have predicted that 5 years ago?
“When you have debt crises and pension plan disasters in large companies within our broader portfolio even outside of clean tech it’s those startups that are focusing on automotive, financial services real estate that are thriving. Exactly the things that you read about in the headlines have been the most destructive economically.
“But if you look at electric vehicles there maybe a few people buried deep within large companies who don’t realize that every vehicle in the future will be electric. Every train, automobile, etc. Big companies wouldn’t lead that disruption. It takes a startup to lead that challenge but it is happening.
“The future will be less predictable, forecast rises will shrink, company lifetimes will shrink, new entrants will proliferate and it’s going to just get more unpredictable. If you thought financial crises came and went, just count on them – another economic collapse, it’s almost going to be like not news any more. But for startups this is great, because it’s a perpetual driver of disruption.”
However, what really excites Jurvetson, it seemed, are not flashy electric cars or sophisticated IT services to manage energy domestic demand or across smart grids, but “genetic alchemy” also known as synthetic biology.
Life sciences were entering a renaissance that would converge with clean tech thanks to computational biology, he said.
“It’s an interdisciplinary renaissance… think about ideas mating in new and interesting ways across academic disciplines to greater effect than within one.
“IT is now reaching out to fuels and chemicals, energy and clean tech, rockets, all kinds of bizarre industries that formerly didn’t face much competition.”
Drew Endy, assistant bioengineering professor at Stanford University and cofounder of Gen9, one of Jurvetson’s portfolio companies put our “partnership with biology” in perspective at a later panel discussion.
“Our work is a radical departure from the past generation (35 years) of biotechnology which has tended to be overdriven by applications, given that we typically turn to biology as a technology partner of last resort to solve pressing problems (cure this disease, give me a drop in fuel now, etc.). This has resulted in a collective and persistent underinvestment in tools supporting biotechnology. Most practice the details of genetic engineering today no different from how it was done in 1980.
“We can project that we’re going to get better at constructing [synthetic DNA]. What does that mean 10 years from now? We should not be surprised to see another 10 fold increase in our capacity to print genetic material.
“In 1980 Genencor took the enzymes that are used in laundry detergent and re-engineered them to work at cold water wash temperatures and the net impact of that if you distribute those enzymes in laundry detergent throughout the US you can realize up to 10% decrease in domestic hot water heating requirements. In 1980 that was the equivalent of around 100,000 barrels of oil a day, 5x the Gulf of Mexico oil spill. That’s one protein integrated into human existence to reduce environmental energy needs.
“You typically don’t think of what’s in your soap or the enzymes that are in your ice cream that prevent ice cream crystals from growing too big in the thermocycle coming in and out of your freezer – I know this is a first world problem – but biology exists with us everywhere. And I see how to partner better with it to reduce loads on the environment and energy that’s where we’ll see a lot of disruption.
“The key is going to be how to figure out how to sustain the investments in the told. If we try to implement the future with the tools of the last 35 years, we’re dead in the water. We’re going to get another handful of things we can celebrate.”
The most powerful gamechanging disruptive innovation is likely to be invisible, said Endy. “We’ll make some biofuels - they are important we need to have agility in terms of replacement petroleum. But we’re also going to change how we exist to reduce our energy loads and footprints. That’s probably where I would expect to see a lot of disruption. It’s likely to be invisible.”