Republicans point fingers at the Obama administration, the author writes. Why the U.S. needs more Solyndras

The fallout from the Solyndra debacle is, in many ways, sadly predictable. Republicans are pointing fingers at the Obama administration for giving the now-bankrupt solar company a $535 million loan as part of its stimulus program. Democrats note that the loan-guarantee program was first established by former Republican President George W. Bush and his Department of Energy (DOE). The upshot: The possibility of any kind of government support to future clean-tech companies is now at risk, just as private investors are becoming even less likely to fund such projects themselves.

But it is imperative that the U.S. look beyond this blame game. The government must help fund clean-energy projects of all kinds, especially credible, venture-backed ones, even with big risks. Such investment is crucial for the U.S. to stay competitive in the global economy and move toward true energy independence.


As our government spends millions of dollars to investigate Solyndra’s demise, other nations continue to pour billions into building their clean-tech industries. Since 2010, China has made available over $40 billion in loans to a handful of their solar companies. Japan, an energy-dependent island nation, has been heavily investing in alternative energy since the oil embargo of the 1970’s. Solar power is also heavily subsidized in many European countries, particularly in Germany. And although our politicians all talk about the need to create jobs, ironically, if we are not willing to level the playing field, meaningful job creation for our country becomes the collateral damage.

Many of course will argue that it is not the role of our government to take venture capital risks; that is the job of the private sector. However, some industries are just too capital intensive to succeed without government help. The original premise of the DOE loan program was that newly developing, clean-tech industries are strategically important to our future. And though venture capital firms are able to fund the most promising projects, commercializing and scaling up these fledgling new companies can take a large amount of funding – funding that is not always available through the capital markets. This is where it makes sense for our government to be involved, even though it was recognized that there would be failures along the way.

In September 2006, when the world looked quite different, our venture capital firm had the opportunity to invest in Solyndra when the company was seeking its third round of financing. The company impressed us with a unique technology and product design. The management team was high quality with a board of directors including some of the most experienced venture capitalists in clean-tech investing. The capital markets were accessible for future financing needs and global demand for solar panels was strong. The major risk was manufacturing, but with a team of such world-class talent, it seemed to be a bet worth making. Though our firm wanted to invest, the financing was substantially oversubscribed and we could not get into the deal.

Unfortunately by the end of 2008, it was a different picture. For Solyndra it was the perfect storm, with the world engulfed in recession, demand for solar panels plummeting and the Chinese government heavily subsidizing solar manufacturers. To be clear, the DOE’s loan came only after the company had privately raised $873million in equity and debt and was followed by $648 million of additional money raised after the loan was granted (a ratio of $2.84 of private funding for every dollar from the government). Yet, despite the capital raised and a lot of noble efforts, it was not enough to overcome these market conditions.

With more funding could Solyndra have made it? In truth, it is unclear. There is a saying in the venture capital business that with enough time and money, anything can be made into a success. But if this is the question you ask, you are missing the point. If, as a nation, we are serious about creating new industries for our future, and creating meaningful jobs, we need to think differently. The rule of thumb among top-tier, venture capital firms is that for every ten ventures that are funded, some will fail, several will succeed and, if we are lucky, one or two will grow up to define whole new industries for our country – industries such as semiconductors, bio-tech, software, internet, communications, social networking and mobile.

During my 30-year tenure in venture capital, almost 12 million jobs have been created by venture-backed companies based in the U.S. Most of them did not need help from our government. But for those new industries that are both capital intensive and strategically important, government help is essential. Solyndra is just one data point. Let’s not lose our resolve to take risks based on this failure alone. Let’s at least see how the next nine clean-tech ventures turn out before we pass judgment. For if we are able to harness the best of venture capital in partnership with a government that can help level the global playing field, then perhaps, rather than being left behind, the U.S. can lead the charge and usher in the next industrial revolution.

Joe Horowitz is the managing general partner at Jafco Ventures in Palo Alto, Calif.

This article tagged under: Opinion

Solyndra

Clean Energy