The King of Green Investing

EnlargeVinod Khosla |

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Making cement without also making carbon dioxide seems impossible; the basic chemistry of the process releases the gas. But maybe that's not really true, Stanford University scientist Brent Contstantz began thinking last year. Of course, it was only a theory, he told himself, but the market for cement is so large -- about $13 billion annually in the United States alone -- and the pressure to reduce its effect on the environment so strong that he sent a 12- line email to venture capitalist Vinod Khosla.

"I have an idea for a new sustainable cement," Contstantz wrote. "I'm sure you are already aware that for every ton of [standard] Portland cement produced, approximately one ton of carbon dioxide is released into the atmosphere. My cement wouldn't do that; in fact, it would remove a ton of carbon dioxide from the environment for every ton of cement produced."

Khosla, who knew Contstantz only casually -- the two hadn't been in touch for 20 years -- was on vacation. But after a discussion that lasted only an hour, he told the scientist, "I don't care about the rest of the business plan. You don't need to estimate costs. You don't need to do a cash flow. You don't need to do a presentation. Just hire five people, set up a lab, and go."

Contstantz was astonished. "What we're up to," he warned, "takes balls."

"Well, you've got the money now," was the response. "Get busy."

It was a classic performance from Khosla, a man who "enters any chamber believing he's the smartest man in the room," in the words of one longtime VC. "In 30 seconds, in one paragraph, I knew this was worth doing," Khosla says now, adding that the cement startup, called Calera, "may be our biggest win ever."

Over the past four years, Khosla has become the world's foremost investor in environmental startups. He has committed an estimated $450 million of his personal fortune to financing 45 ethanol factories, solar-power parks, and makers of environmentally friendly lightbulbs, batteries, and automotive components. These investments have made him the most prominent of an increasingly rare breed, the so-called angel investors who put their own funds into the youngest of companies -- including outfits that are pursuing the most innovative, but not yet commercially viable, approaches to serious problems such as global warming. It's a kind of seed-stage investing that traditional venture funds have largely abandoned. And rightly so, Khosla says. "If somebody comes to you with a cold-fusion idea, you should not be funding it as an investor with other people's money. Funding it, if they're credible people, as a science experiment, as a hobby, is perfectly okay -- as long as it's your own money."

Khosla's green investing has made him something of a celebrity, mentioned in the media with the likes of mogul Richard Branson, former President Bill Clinton, Hollywood producer Stephen Bing, and General Motors chairman and CEO Richard Wagoner. I've known Khosla since his days as a recent immigrant from India more than two decades ago but hadn't seen him in years until we met in his office in Menlo Park, California, earlier this year. Khosla Ventures is tucked away in an unprepossessing corner of a redwood complex of small offices. The decor is rental-furniture bland. The only reading set out for visitors is a four-month-old issue of National Geographic with a cover story on biofuels. Khosla's own office is spare, with 15 large black-and-white photographs of his four children on the walls. For others in the firm, office dress is Silicon Valley casual -- jeans, fleece vests, and running shoes -- but Khosla arrives more elegantly attired, in taupe slacks; a chocolate long-sleeve, zip-neck knit shirt; and slip-ons in luggage tan with leather bows and kilties. He's 53, a slender 5-foot-10, genial and looking relaxed despite the prominent dark circles under his eyes.