Khosla, Blacks Swans and our Energy Future

Vinod Khosla would like all of us to be a lot more ambitious; even other VCs are too risk averse in his mind. In his new paper, Black Swans Thesis of Energy Transformation he argues that

The looming twin challenges of climate change and energy production are too big to be tacked by known solutions and time-honored traditions. Incremental remedies are fine for incremental problems, but they are insufficient for monumental, potentially life-altering threats, which need to be approached with a disruptive mindset.

By this Khosla means, don’t get too excited about the latest thin-film technology or the lithium-ion battery that is powering your electric car. These are only going to provide marginal improvements that won’t be transformative enough to solve the climate crisis. He thinks we need to chase after Black Swans, outliers that lie “outside the realm of traditional expectations.” He is hoping that these breakthrough technologies will  “upend assumptions in oil, electricity, materials, storage, agriculture and the like.”

On one hand, the report is exciting, because it is one person’s vision for how we might tackle the climate crisis. I think it will also help to encourage a new generation of energy entrepreneurs to dream big. When oil hit $150 per barrel it shook people up and inspired many young engineers and scientists to try to find solutions to our energy problems. Maybe this paper will focus their efforts on even loftier projects than they would have pursued otherwise.

However, the more difficult challenge will be to change the mind of his fellow VCs. Khosla admits that he doesn’t look at internal rate of return when he makes an investment. That sort of thinking doesn’t find you the next Google according to him, which is what he wants to do in the field of energy. During the whole green euphoria of a few years back, there was supposed to be too much money chasing too few good investments. Khosla doesn’t say this directly, but I guess he would argue investors were going after the wrong sort of investments – ie, too safe and without the potential to really solve our environmental problems.

It’s rare to see a truly disruptive technology in the energy field where the powers of incumbency are quite great. If you think about it, most of the central technologies we use today have been around in some form or another for at least a century. The big exception being nuclear. But that took the Manhattan Project to get it off the ground and also massive government subsidies to make it profitable ever since.

Khosla isn’t saying that we need a Manhattan Project for green energy – although it wouldn’t hurt. But we do need a level playing field. And we will need lot’s of different people making their own investments in technologies that might change the world. Khosla thinks the technologies that will eventually solve our energy problems are unpredictable today. So rather than a single Manhattan Project, it will have to be thousands of brilliant minds chasing after thousands of different visions. In that way, we’ll get our next green Google or Facebook.

To win over some of his doubters, there is one question Khosla should answer: Is he chasing after highly risky investments because our problems are so great or is it truly the best investment strategy for VCs? It would be nice if it were the latter, but some skeptics might think it is the former.

Incremental investments are more easily justified, because the payoff is sooner and more clear. But sometimes even small changes can start to make a difference. It wasn’t that long ago that Detroit was scoffing at the potential for electric cars and lithium-ion battery technology. But investment dollars driven largely by the consumer electronics industry led to a new way to power our vehicles and not just our laptops. This wasn’t a Black Swan in the sense that Khosla means, but it is the beginning of remarkable transformation, even if he thinks it won’t be the answer to all of our problems.

However it happens, change is good.




  1. Sharon Eisner says:

    Mark: I enjoyed your comments concerning Khosla’s BLACK SWAN concept. This isn’t the first time that he has pushed his Black Swan Theories to the hopeful, unknowledgeable public. I now interpret his crafted self-promotion media in totally different perspectives than I did just one-half of a decade ago.

    I’ve evaluated this man’s choices of energy investments quite closely. I can say that while a disruptive Black Swan is the bona-fide target – Vinod himself is a very, very poor estimator of what some new alternative energy technologies will actually work. He might understand something about bits and bytes of certain software programs – but as a trained electrical engineer back in college – he has assimilated NO real working knowledge of what mechanical, chemical or biological functions will work the best in relationship to producing scalable systems to produce alternative forms of energy.

    I could pen chapters in response to Vinod’s limited successes in VC capital backing of certain firms – yet I won’t. He’s someone who can afford to gamble both his own money and that of other investors. Knowing what I do know about this man, I’d NEVER participate in one of his hedge funds and therin let him invest my money. He’s a dreamer who (repeat for emphasis) does NOT understand mechanical, chemical and biological engineering. If some skilled editor were to expose his corporate lies as well as his litigation – you and others would possibly think quite differently of this man.

    Not a fan.

    Sharon Eisner
    Broomfield, Colorado

    • Sharon,
      The Soperton, GA Range Fuels event was basically a re-run. I live within thirty minutes of the site. When someone over sells, over promises and over promotes no one believes. More than a few folks around here figured the “king had no clothes” from the get go. It’s the ” yeah right” you hear grumbled over coffee. Politicians and promoters all have the same sound. We had seen this movie before.

  2. There are serious errors in the Black Swan thesis. There is an essay here:

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