They're Writing the Checks; Ray Lane and Matthew Rogers on the new energy math for venture capitalists
Venture capitalists never know for sure which energy innovations will succeed, but they've learned a lot about what it takes to give them a chance. The Wall Street Journal's Kimberley A. Strassel discussed the makings of a successful venture with Ray Lane, managing partner at Kleiner Perkins Caufield & Byers, and Matthew Rogers, a McKinsey & Co. director and former senior adviser to the secretary of energy for Recovery Act implementation.</br></br>Here are edited excerpts of their conversation.</br></br>MS. STRASSEL: People have come to understand over the past year or two that sometimes energy projects are incredibly capital-intensive, a billion dollars sometimes to create a plant, and sometimes it's going to take seven or eight or years to build one of those. How does a venture-capital market evaluate the risk of that, and do they have the patience and time to do those kinds of investments?</br></br>MR. ROGERS: You're going to have to think through how you deal with existing infrastructure, because you're going to try and displace it in a finite market. You're going to have to understand where all the capital is going to come from during the life cycle, because otherwise it doesn't make sense for a venture capitalist. The idea is to take a lot of risk in an early stage and hope you have enough ownership and liquidity to get a 10X return, because you're going to have a lot of losers in the portfolio.</br></br>MS. STRASSEL: Can venture capital do this alone, though?