Inside Marc Andreessen’s New Venture Capital Fund

Happy Fourth of July!

Let’s celebrate entrepreneurs and venture capitalists who embody economic freedom!

On that note, check out the story I wrote about Netscape cofounder Marc Andreesseen’s new $300 million VC fund. Bonus: a video of me blabbing about it with tech editor Peter Elstrom.

Here’s the top:

With the financial world in turmoil, this may seem like a terrible time to start a new venture capital firm. But not for Marc Andreessen, co-founder of Internet pioneer Netscape Communications, and business partner Ben Horowitz. The two Silicon Valley entrepreneurs just raised $300 million to launch the firm, dubbed Andreessen Horowitz, say several sources involved in the effort. The pair had originally planned to raise $250 million, but boosted the amount because of strong investor interest.

Andreessen and Horowitz are expected to publicly unveil their firm later this month and declined to comment. But sources say the duo raised most of the money from institutional investors, including Horsley Bridge Partners, a San Francisco firm that invests corporate and government pension-fund money in venture firms. Among the new firm’s other backers are prominent tech industry players including Reid Hoffman, founder of the social networking site LinkedIn, and Peter Thiel, former CEO of the payment service PayPal. “Marc is doing some innovative things,” says Hoffman, who confirmed his involvement. “I like the direction he is going.”

Click here to read the rest of the story.

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Silver Spring: A Growing Presence in Green Tech

Today, BusinessWeek published my story on Silver Spring Networks–the most important green technology company you’ve never heard of. Silver Spring makes digital power meters that utilities are buying up by the millions to lay the foundation for a smart electricity grid.

Here’s the top of the story:

Silver Spring: A Growing Presence in Green Tech
Its smart energy meters are winning big customers in California and an investment from Google

California’s ambitious green agenda is swiftly pushing startup Silver Spring Networks into the black. In July 2006, the Golden State leapfrogged to the forefront of the environment-friendly tech movement when regulators gave the state’s largest utility the go-ahead to spend big on so-called smart meters that can moderate energy use. Once a dumb electro-mechanical machine that garnered little attention outside a once-a-month reading, the lowly meter has become a cornerstone of energy innovation by morphing into a two-way communications device.

And thanks to a measure approved by the California Public Utilities Commission, Pacific Gas & Electric (PCG) had $1.7 billion to spend on them. To fulfill its mandate, in July 2008 PG&E tapped a digital meter technology from Silver Spring Networks in Redwood City, Calif. Over the next four years, PG&E plans to replace all 5 million of its electric meters with Silver Spring’s technology.

Smart meters are part of what’s known as the smart grid, an upgraded national power infrastructure designed to dole out energy more efficiently and make both consumers and companies more knowledgeable about their use of electricity, gas, and other utilities. The government stimulus package signed into law on Feb. 17 includes billions of dollars for smart grid technology. “Smart grid is pretty critical to the future of our company,” says Andrew Tang, senior director of PG&E’s smart energy Web division. Rolling out millions of Silver Spring meters will mark “the beginning of a smart grid solution.”

A Green Startup You Never Heard Of

Demand for smart meters in particular may make six-year-old Spring Networks the most important green technology startup you’ve never heard of. Thanks to contracts from PG&E, Florida Power & Light, and other utilities, Silver Spring boasts a backlog of orders for meters and related technology worth $500 million, a princely sum for a company of Silver Spring’s age. The company is on track to generate positive cash flow in the second half of 2009, says President and CEO Scott Lang. “We are trying to transform the power industry for the 21st century,” Lang says.

Before the government announced plans for smart grid spending, Lang says Silver Spring was on track to hit $75 million in sales this year. The company now is revising those estimates “significantly upward,” Lang says, though he won’t say by how much. Silver Spring’s backlog is expected to double in the next 12 months, he adds.

Some of the most powerful players in Silicon Valley believe Silver Spring could be one of the first home runs to emerge from the clean tech boom. The latest sign: On Feb. 9, Google (GOOG) confirmed that it made an investment in Silver Spring. Representatives from Silver Spring declined to comment, but a source close to the company says it was in the range of several million dollars.

Google Investment Builds Confidence

Last October, Kleiner Perkins Caufield & Byers, an early investor in Google, led a $75 million investment in Silver Spring. According to the National Venture Capital Assn., that brings the total raised by Silver Spring to $167.5 million. That money will help fund a global expansion and should give utilities more confidence to form a partnership with the little-known player on a critical project. “This company is potentially one of the largest outcomes in clean tech,” says Warren Weiss, a Silver Spring director and general partner with Foundation Capital, one of Silver Spring’s early investors.

Click here to read the rest of the story.

Capitalism to the Rescue: VCs Land the Times Magazine Cover

The cachet of venture capitalists must be rising if the The New York Times magazine puts them on the cover. In “The New New Economy” writer Jon Gertner profiles venture capital’s preeminent firm Kleiner Perkins and its audacious bet on developing green energy technologies.

It presents a fine overview of a subject written for a mainstream audience. Gernter does a nice job demystifying some of the inner-working of the VC biz and introducing us to a number of the Kleiner-backed companies. But if you are a Valley watcher, there isn’t anything all that surprising in the story.

I think this is the first time in which the Times mag put a VC on the cover, though I’m not 100% sure. In my book, I discovered a Time magazine cover from 1984, “Cashing in Big: The Men Who Make the Killings,” featuring legendary VC investor Arthur Rock.

Contrast Gertner’ cover with Adam Lashinsky’s “Kleiner Bets the Farm” feature that ran in the July issue of Fortune magazine. I think Lashinsky’s tale, though briefer, offers a more sophisticated take emphasizing the extreme riskiness of Kleiner’s all-in green energy bet, while also perceptively pointing that Kleiner, the firm that backed Netscape (the company that sparked the Internet revolution) has largely turned its attention and resources away from the Internet.

VC Industry Hits Headwinds: Creative Capital Gets Nod in San Jose Mercury News

The venture capital industry is clearly in transition. The old school business model of raising modest amounts money to invest primarily in early stage startups is giving way to a different industry that features larger funds and, perhaps, less risky investments in more capital-intensive businesses that are more mature.

Scott Harris, a reporter from the San Jose Mercury News, picked up on this trend and made it the major theme of his recap of the National Venture Capital Association Conference’s annual confab.

In the story, Harris focuses on the conference’s highlight: a conversation between the two most successful venture capitalists of the last decade–John Doerr from Kleiner Perkins and Mike Mortiz from Seqouia Capital.

In the middle of the story, yours truly shows up as an expert source, talking about the growing concerns in the VC business over the industry’s generally poor investment returns.

[Begin]
Successful companies are facing a longer path to the liquidity deal that enables VCs and LPs to realize the gains from their investment. “We’re all frustrated because the average time to liquidity for a venture-backed company is now seven years,” said Pascal Levensohn of San Francisco-based Levensohn Venture Partners.

“It’s not a crisis, but there’s tension,” said journalist Spencer Ante, who explored the history of the venture industry in his new book, “Creative Capital.” “A lot of money is getting raised, and a lot is getting invested. But what are you going to get out of that money? That’s the question.”
[End]

One final thought: As the older more mature funds wrestle with these challenges, what is equally interesting is the crop of new back-to-basics funds–such as Founders Fund, O’Reilly AlphaTech, and 406 Ventures–that have been cropping up over the last few years. These new funds may help fill the void in early stage investing.

Is Kleiner Perkins’s Apple-Focused iFund a Good Idea?

One of the most interesting things that came out of Apple’s announcement that it was entering the corporate wireless market was the news of the Kleiner Perkins iFund. According to the statement on KP’s Web site, “iFund is a $100M investment initiative that will fund market-changing ideas and products that extend the revolutionary new iPhone and iPod touch platform. . . Focus areas include location based services, social networking, mCommerce (including advertising and payments), communication, and entertainment.”

iFund is the latest example of an emerging trend in venture capital: platform-specific VC funds. By a large measure it is also the largest venture fund ever devoted to a single technology platform. In 2007, several funds were created exclusively to invest in Facebook applications. Last July, Silicon Valley VC fund Bay Partners caught some flack when it earmarked a few million dollars for investment in Facebook developers. In September, marquee firms The Founders Fund and Accel Partners (an investor in Facebook itself) launched a $10 million fund for Facebook applications called FBFund.

Kleiner Perkins is putting its top talent in charge of the fund. iFund will be managed by KPCB Partner Matt Murphy in collaboration with partners Chi-Hua Chien, John Doerr, Bill Joy, Randy Komisar, Ellen Pao and Ted Schlein.

So is it a good idea? Sure–especially if you are arguably the premier VC firm in the world. So far, platforms like Facebook have fueled an explosion in software development and wealth creation. The most popular Facebook applications, derisively referred to as widget makers, have created businesses that are valued in the hundreds of millions of dollars–and the business model for social networks and widgets is still in its infancy. Kleiner Perkins is betting that the iPhone represents a similar breakthrough in computing, and that it will be able to pick the winners of the market. With so much potentially at stake, that’s a bet worth taking.

One Kleiner Perkins alum has already set himself up to make a killing off of Facebook. Khosla Ventures, the firm started by Kleiner Perkins affiliated partner (and former General Partner) Vinod Khosla, has shown the foresight and brilliance to invest in two of Facebook’s blockbuster apps–Slide and iLike.

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