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The six million dollar men

Silicon Valley plans to clean up by investing in green energy.

Such was its unique ethos that the Valley coped well with the economic downturns of the '70s, '80s and '90s. If anything, it thrived on them, turning the hard times to good use by sniffing out ideas that would help it bounce back when the wind changed. In this way, those in the Valley found themselves well placed to finance and build the Internet revolution that ended up producing the Amazons, Googles and Yahoos that now dominate the online world.

And when the dot-com bubble burst in 2000, the Valley did what it had done before: It bided its time gracefully until the next big opportunity came along.

A hint of what that opportunity would be came in 2003 as the price of oil began to rise, and when it skyrocketed, Valley financiers were galvanized to action. The energy business needed reinventing and they were ready for the challenge.

Vinod Khosla, one of the Valley's most successful venture capitalists, explains how the skills they gained from the high-tech industry now put them in an optimal position. "They're about managing technology risk," he says, pointing out that whether you're dealing with computers or energy, those risks are the same. Khosla is no stranger to managing risk. He co-founded Sun Microsystems in 1982 (with funding from Doerr), making a small fortune in the process. In 1986, with the personal computer revolution getting into its stride, he left to join Doerr at KPCB. By 2004, a series of entrepreneurial hits had put him in a position to start his own investment firm, Khosla Ventures.

Khosla has become one of the Valley's biggest investors—and believers—in the new energy technologies. Improving energy efficiency or changing laws will only deliver small incremental gains, he says. "A new technology, on the other hand, can make a 200 percent or a 400 percent or a 1,000 percent difference. Technology is a sure-shot solution."

The hard part is picking the right technology. To make that call, Khosla applies a number of tests learned from his years investing in computing and Internet ventures. A key factor is whether the rate of innovation is fast enough. A rapid innovation cycle—the time it takes to turn promising ideas into goods that can be sold—is crucial to progress, he says, because it allows new ideas to hit the market quickly and gives investors the prospect of a fast return.

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