Kleiner bets the farm (cont.)

As for the road not taken, Kleiner partners stick to the party line: We haven't missed that much. During two weeks of interviews with 15 partners, I repeatedly hear the opinion that having sat out Web 2.0 just hasn't been a big deal. "Take YouTube out," says Randy Komisar, a seasoned technology executive who joined Kleiner three years ago. "What's done well?" He's right, to a point. Sequoia scored when Google bought YouTube in 2006 for $1.65 billion. But in general there have been few "exits," VC-speak for IPOs or company acquisitions. In the second quarter of 2008 there wasn't a single IPO of a VC-backed technology company, a dry spell that hadn't happened in 30 years.

The outcome of Kleiner's wager will be known only when the crop of companies on which it passed either start selling out at fire-sale prices or go public at register-ringing valuations. Its stance makes for a stark bifurcation in the Valley: those who have thrown their lot in with Web 2.0 and those who are betting on the hot new thing. "Are you saying the entire reincarnation of the Internet won't present any great returns? Come on!" snorts a top executive with a leading online company when I repeat Kleiner's thesis. Adds David Sze, a partner with Greylock Partners: "I think there are going to be plenty of exits and that we're going to make money." Sze has a lot riding on his assertion. Almost all his investments are in Web 2.0 companies like Facebook, LinkedIn, and Digg.

One top-tier firm that hasn't taken a religious position on green vs. Web is Sequoia Capital. In addition to backing YouTube and LinkedIn (which recently attracted new investors at a billion-dollar valuation), Sequoia has also made 14 investments in alternative-energy companies. One is a battery company called A123 Systems. Sequoia's Moritz recently told a group of entrepreneurs that his firm has made these investments "quietly"- he didn't add "unlike Kleiner," but he didn't need to. Asked if Sequoia considers such factors as social responsibility in its investments, Moritz noted that the firm's only real job is making money for its investors, many of whom are in the philanthropy or nonprofit business themselves, and therefore better positioned to spend on saving the world.

Menlo Park is where deals get done in Silicon Valley, but Sunnyvale is the kind of town where the companies actually get built. The temperature nears 100 degrees outside as I drive there to meet K.R. Sridhar, CEO of Bloom Energy, Kleiner's first renewable-fuels investment and its favored showpiece to explain to the rest of the world what it is doing. Sridhar, a 47-year-old engineer who worked on one of NASA's Mars lander programs before founding Bloom in 2001, explains to me how the company is developing a fuel-cell system that will power single-family homes or entire office complexes. As he speaks, though, my eye is drawn to the photographs of the public-policy big shots who have toured Bloom's facility with Sridhar: Al Gore, Colin Powell, Arnold Schwarzenegger, Michael Bloomberg, Bill Clinton, and the celebrity journalist Tom Friedman, among others.

This collection of luminaries is telling. For one thing, Bloom isn't ready to share many of the basic details of its business: who its customers are, what specifically it will sell, when it plans to bring its products to market, and so on. In other words, it has plenty of secrets to keep, yet it's a fixture on the green-is-good political tour of corporate America. What's also telling is the star power of Kleiner Perkins. Gore, as noted, is a Kleiner partner. Powell is a "strategic limited partner," whatever that is, as Doerr might say. Friedman is a cross-country-skiing buddy of Doerr, who likes to pepper his commentary about global investing with reminders that we live in a "flat world."

Investors, including Kleiner, have pumped more than $200 million into Bloom, yet it is at least a year from being ready even to make its product at commercial scale, much less make money selling. It's an audacious risk that is being played out repeatedly in Kleiner's portfolio. Ray Lane, the former president of Oracle who joined Kleiner in 2000, says one of his portfolio companies, GreatPoint Energy, won't have its first commercial plant for turning coal into natural gas in operation until 2012, which would be seven years after Kleiner first invested. Another Kleiner investment, solar-panel maker Miasole, has missed several major product milestones and replaced its CEO. Yet Miasole is trying to raise $200 million from hedge funds and other investors at a valuation of around $1 billion.

There is one company that could be Kleiner's first energy-sector grand slam- and there's nothing green about it. The secretive, seven-year-old company, called Terralliance Technologies, has developed software that purports to make it easier and cheaper to find and extract oil and natural gas. Rather than license its software to petroleum giants, Terralliance decided to become a wildcatter itself. According to Kleiner partner Joe Lacob, Terralliance has already dug 100 wells around the world and is in the process of raising additional capital. Sources peg the new financing at more than $1 billion and a valuation of around $4 billion. In addition to Kleiner, Terralliance investors include Goldman Sachs and San Francisco hedge fund Passport Capital.

Terralliance, founded by software entrepreneur Erlend Olson, is so stealthy that it has no phone listing in Newport Beach, Calif., where it's based. Its corporate Web site consists of one page that shows a map with three locations in North America, one in Europe, and one in Southeast Asia. A three-sentence description of the company says, "Terralliance has already achieved exploration success rates dramatically above the industry norm." The company may be quiet, but it is well connected. Several years ago it retained Richard Richards, a former Reagan aide and chairman of the Republican National Committee, to make introductions to foreign governments in order to obtain commercial visas. "They're very secretive because they've got some technology they don't want the big guys to steal," says Richards. He says Terralliance hasn't called in a couple of years because it now has a far better-connected advisor helping it with foreign governments: former Secretary of State Colin Powell.

If Terralliance's technology works nearly as well as its Web site says it does, the company could be ready to make a big splash. It recently hired a chief financial officer, Stephen Buscher, a former investment banker with Lazard Frères and Merrill Lynch who previously was CFO of Russian oil company Urals Energy, which is listed on the AIM stock exchange in London. Reached at his office in Newport Beach, Buscher said, "We're not prepared to make any comments."

It would be ironic, to say the least, if Kleiner's first "green" jackpot turns out to be a company that actually drills for oil. Doerr, who has made the reduction of fossil-fuel use a personal crusade, refused to comment on Terralliance.

NEXT: Kleiner bets the farm (cont.)

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