Opinion: A Time for Partnership

February 15, 2011

POLITICO Pro: Opinion: A time for partnership
By WILL COLEMAN and JOSH GREEN
2/14/11

In his State of the Union address, President Barack Obama declared that “winning the future” must start with innovation. Nowhere is the need for innovative technology advances more acute than in energy. The ability to produce and distribute low-cost energy — and the corresponding technologies that will support 50 percent growth in global energy consumption over the next two decades — is fundamental to our nation’s competitiveness. The president laid out an ambitious path that included a variety of federal policies targeted at promoting clean energy innovation. But, as the budget deadline approaches, the questions are what can get done and how will we pay for it? The real solution lies in an honest partnership between the public and private sectors.

It has become a trope that China’s central government is besting America’s efforts in direct clean energy investment, at a rate of well over 2-to-1. In the face of record deficits, the truth is that we simply can’t match that level of government spending dollar for dollar. The good news is that we don’t need to. America’s strength is our private sector, which still has the capacity to out-innovate and out-compete the rest of the world.

And while the federal government plays a determinative role in the highly regulated energy market, it need not follow the Chinese model of nationalized project financing. A better approach is to leverage timely and targeted public policies to unleash our private sector to do what it does best — create wealth and jobs for American corporations and communities.

The secret to our country’s historical leadership in innovation is a unique mix of entrepreneurial spirit, strong research institutions, open markets and well-established means of capital formation. All of these elements work in concert and can drive enormous growth when focused on big challenges and opportunities.

Investors are ready to invest where they see large, accessible markets. In the venture capital community, we invest in some of the earliest-stage, highest-potential and fastest-growing startup companies — companies that epitomize the entrepreneurial spirit of our country. Venture capital invests just 0.2 percent of gross domestic product every year, and yet venture-backed companies are responsible for one out of every 10 jobs in the United States. The venture model is designed to take large risks on technology and business development where we see opportunities for disruptive technologies to generate significant value. The key is that the right market dynamics must exist to make this possible. Venture capital is capable of doing its part to help America accomplish “big things,” but, in the energy sector, we recognize that government will play an important role in unlocking opportunity.

To help shepherd the most impactful technologies from the lab to the market, government can contribute in two key areas. First, public investment should support the basic and applied research that allows the private sector to uncover transformative technologies. DARPA’s investments in the internet and NIH’s investments in medical research both have supported America’s leadership in trillion-dollar industries. Programs like ARPA-E have the potential to do exactly the same in energy.

Second, to really embrace innovation in this country, we need to break the bottleneck for commercializing novel technologies. This takes two forms: ensuring that regulatory structures and incentives create robust markets for innovative technologies and providing targeted financing to fill gaps in the private financing environment. If the technologies are developed, and large accessible markets exist, then the private sector can drive much of the commercial development of these technologies. However, in many cases, the capital requirements and lack of an operating track record make it difficult for companies to leverage traditional financing. If we are serious about deploying the most innovative technologies in this country, then we need to address this gap. A reliable program would provide more investors the comfort they need to invest in some of the heavier industrial innovations that our country will require.

An enormous amount can be accomplished in partnership with the private sector and through policies and incentives that create competition for the best new technologies to succeed. To this end, we are calling on Obama and Congress to articulate an industrial and energy policy that the private sector can invest behind. It should support early research including commercially oriented programs such as ARPA-E and open markets through programs such as a Clean Energy Standard and performance-based incentives and target funding gaps through collaboration with the private sector on loan guarantees and a clean energy development bank.

If time were not an issue, it might be enough to leave the private sector to go it alone. But we are in a global race to remain competitive. Speed matters. Individual companies will succeed or fail on their own merits, but sound government policy is critical for the United States to win the global innovation race.

Mohr Davidow Ventures is a Silicon Valley-based venture capital firm.

Josh Green is a general partner with MDV. He has acted as an adviser to Silicon Valley startups in the computer, Internet, telecommunications, biotech and medical-device industries.

Will Coleman is a partner in MDV’s Cleantech group. He has more than a decade of experience working with several startups and early clean-tech funds and helped develop project finance structures for new energy technologies.