Venture capital going to all things green

Bloomberg compares in a lengthy article the current boom in venture capital funding for alternative energy companies with what we saw during the dot-com boom. Many of the venture capitalist firms in California are dangling millions of dollars in front of solar panel makers and biofuel companies, which are often money-losing companies hoping to harness the power of the sun or cooking up gasoline and diesel substitutes from a variety of crops. VC funds investments in renewable energy rose 36 percent in 2005, to a record $739 million. Silicon Valley pioneer Vinod Khosla, who co-founded Sun Microsystems Inc. and helped finance Amazon.com, is worried the current boom is becoming like the dot-com bubble. The alternative-energy bulls believe a combination of outside pressures, the soaring prices of OPEC crude, the booming economy in China, and the growing concerns about global warming are about to usher in a new era of green power, and they hope to make some profit of this development. Where will they find this profit? It seems every single VC firm has a different answer. Khosla is betting on ethanol, Erik Straser, a partner at nearby Mohr Davido Ventures, believes solar power is the answer, while Lee Bailey, COO of US Renewables LLC, has spent $38 million for a stake in a geothermal plant.  Nancy Floyd, co-founder of Nth Power LLC is wagering on biodiesel, among other sources. While many of the alternative energy sources are clean, very few of them are currently cheap in comparison to the traditional sources, increasing concerns over the economics of some of the alternative energy companies. But the biggest risk for all the alternative energy companies, and the VC investments, is oil. While all VC's and stock market investors are betting that high-priced crude is here to stay, a drop in oil to $50 a barrel could make the alternative fuel bubble burst just like the dot-com bubble. With the spiraling demand for power worldwide, however, this is a very unlikely scenario.
[Source: Bloomberg]