With the recently announced foreclosure of Vinod Khosla venture Range Fuels, followed by the fire sale of Range Fuels’ assets to Vinod Khosla venture LanzaTech, I have been getting a lot of calls from reporters wanting to discuss exactly what happened here. After all, well over $300 million was invested into Range Fuels — including tens of millions of taxpayer dollars — and what resulted were assets that were ultimately bought by LanzaTech for about $5 million.
Two articles were published over the weekend by journalists I spoke with last week:
This quote caught my eye from one of the articles:
“These, quote, venture capitalists are basically venture socialists,” said Kenneth Green, a resident scholar at the American Enterprise Institute, a conservative think tank in Washington. “They’re getting large amounts of research money and loan guarantees to build pilot plants and other projects. They’re looking to socialize the costs of their efforts, but keep private the profits.”
I suppose that is an apt way to put it. These venture capitalists have found that they can defray their risks with tax dollars — and thus subject taxpayers to the risks from their projects — while they reap any potential rewards. As Vinod Khosla recently boasted, he has made a billion dollars by taking some of his ventures public, and the valuations of these companies are at least in part based on the government grants and loans they have received. But as I noted in one of the articles, none of the companies are actually producing fuel commercially. That is the true test of success from my perspective. Ten years from now it won’t matter to very many people if Khosla made a billion dollars for his investors if none of the companies were successful at producing fuel that is competitive with oil.
Khosla believes he should be applauded for what he is doing:
“Range’s original formulation may not have been successful, but such risk-taking deserves applause, not derision,” Khosla, who helped start Sun Microsystems, wrote. “In the end, success is never assured.”
I would say that sort of depends on the nature of the risks, don’t you think? In this case, the risks were substantial from my point of view, and poorly understood (and not at all articulated) by many who pushed this project. Add the fact that you risked my money and damaged the credibility of the renewable fuels industry, and I believe I will withhold my applause. Personally, I think taxpayers deserve to be paid back before any project associated with any of the Range Fuels backers is eligible for any more federal funds.
Of course as I have argued before, I would change this system up anyway so the risks from these projects are pushed back to the private sector — where they belong. If we started providing rewards for those who deliver on their promises instead of those who generate the most publicity in making them, these sorts of fiascoes wouldn’t be a big deal. Businesses fail all the time. But if they are being funded by private investors, then that’s just business.