Mr. Cleantech doubles down on green future

SAN BRUNO, California Tue Sep 28, 2010 8:24am EDT

SAN BRUNO, California (Reuters) - "Who doesn't want cheaper and better?"

That, in one sentence, is the sales pitch of Silicon Valley's preeminent investor in clean tech, Alan Salzman of venture capital firm VantagePoint. Actually, forget the sales pitch.

In his view, green technologies sell themselves -- with the help of just a little government "pump priming" for industries that can undercut fossil fuels or antiquated products like light bulbs as they get big and efficient.

VantagePoint is about to plow more money into cleantech, backed by investors such as the large retirement fund, California Public Employees' Retirement System (Calpers). Salzman has close to 30, or about three-quarters, of his investment pros and $1.25 billion of the company's total commitment focused on cleantech. About half the $1.25 billion has been deployed so far.

Acknowledging these bets have yet to pay off, he said investors are patient -- for now. It's like baking a cake, said Salzman, who just got back from a tour featuring speeches at the World Economic Forum in Tianjin, China, and at a global climate conference in New York.

"You pop a cake in the oven and it's a pan of goo that needs to cook for ... 45 minutes. If you pull it out of the oven after 10 minutes and eat it, it's going to taste like crap," Salzman said. "It's a work in progress. It's baking in the oven."

One sign the cake is getting ready: Salzman said he's getting overtures from potential buyers for some of his cleantech companies.

"The larger energy companies have deep balance sheets and the ability to buy next-generation companies when that makes sense," Salzman said. "I don't see the likelihood in the next six months of there being a giant whoosh. It will be an accelerating trend."

As cleantech industries mature, companies jockey for position, Salzman said. For manufacturing of traditional solar power cells on silicon chips, China-backed companies like Suntech Power Holdings Co, Trina Solar Ltd and Yingli Green Energy Holding Co are best placed, while Germany's Q-Cells SE is going to face a tough time, he said.

"The lower cost, high scale manufacturers which are predominantly in China appear to be in a very strong position. A lot of them are getting to scale and have access to low cost and abundant capital," Salzman said, adding China's premier Wen Jiabao told him and other businessmen the country is emphasizing investments in new solar technologies.

For lighting, the future is emerging companies like Teos, a VantagePoint backed start-up, existing players with a first-mover advantage like Cree Inc and big incumbents like Philips Electronics, which have their own research programs, Salzman said.

LED lighting, which uses microchips to convert electricity to light, is the investment of this decade, Salzman said, and will replace ugly fluorescent lights like those in his conference room.

"Who wants to live like you're in a 7-Eleven at 3 a.m. buying a Twinkie?" he quipped, glancing at the ceiling.

Salzman, who drives a electric Tesla sports car with specially painted racing stripes (VantagePoint still has a 7 percent Tesla Motors stake), is cagey about whether he has yet outfitted his Atherton, California, home with LED lights.

The only way to find out is to get invited to the annual Valentine party-fund raiser that Salzman's wife, Jillian Manus, throws every year.

The party, which raises money for Stamford University's cancer research, attracts a list of Who's Who in Silicon Valley including California gubernatorial candidate Meg Whitman. Whitman, a friend who lives in the same town, is Salzman's favorite in the upcoming November elections.

"Meg understands the role of innovation," Salzman said. "If you are looking at creating jobs and industry and you don't believe the future of this country or any advanced society is everybody working in fast food restaurants, where is your industrial base going to come from if not these industries?"

One wrinkle: Whitman has promised to put California's climate change law, AB 32, on hold for a year if elected.

"It's a terrible idea," Salzman said. "And I would hope that that position is considered carefully prior to any action being taken once the election is over."

Salzman, a Canadian who started his career as a tennis coach and lawyer, first got interested in cleantech when he ran an environmental law practice in San Francisco in the early 1990s -- a time of legislation and lawsuits over big industrial contamination.

"Lawyers and lobbyists were less expensive than cleaning the stuff up," Salzman said, noting there's something wrong with that.

Salzman, who started VantagePoint in 1996 with Jim Marver, got serious about clean tech after the dot-com bubble burst in 2000 and he was searching for the next big thing.

"Post tech crash we spent a fair bit of time talking about waves of innovation sweeping through industries," he said. "The energy, water, materials industries -- which were the largest industries on the planet -- had never undergone this" innovation.

(Reporting by Jack Reerink and Peter Henderson; Additional reporting by Poornima Gupta; Editing by Richard Chang)