Investing in biofuel and energy is way harder than Silicon Valley startups


Silicon Valley billionaire Vinod Khosla has learned the hard way that financing tech startups is trivially easy compared to alternative energy like biofuels. He has financed several biofuel startups, and they’ve all crashed and burned, taking lots of investor and tax money with it. A big problem is his arrogance that Silicon Valley could do what ginormous energy companies haven’t been able to do, which is manufacture cost-effective biofuel on a commercial scale.

What Khosla didn’t appreciate is that he isn’t smarter than the people in the oil industry. It’s just that the computing and information technology industries were still relatively new, and a great deal of innovation was still taking place in a young field with lots of room for innovation. The oil industry is 150 years old, and while the fracking boom shows that innovation still takes place in the oil industry, it is a very mature industry. Thus change tends to be incremental, not exponential. Almost everything that appears novel to an outsider like Khosla has almost certainly been investigated by multiple companies.

There’s no oil company conspiracy here, says Robert Rapier of Energy Trends Insider. Energy companies have invested hugely in trying to develop biofuel and have no reason to hold such developments off the market, as a patent on such a process would immensely profitable. The reason they have done so is because no one has figured out how yet.

Khosla glossed over the problems and made it sound easy as pie. He is accustomed to seeing technical challenges solved in Silicon Valley. Again, that’s primarily because these challenges are often relatively new. They are not like some of the challenges in the energy business, which have seen decades of work and billions of dollars spent on some of these approaches. The easy challenges were all solved long ago.

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