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10.21.10

Vinod Khosla's Ingenious War on Global Poverty

Is it possible to fight global poverty through winning technological investments? David Kirkpatrick talks to a billionaire who’s doing (very) well by doing good.

Vinod Khosla didn't want a yacht. As one of the world's richest venture capitalists, with a fortune estimated recently by Forbes at $1.3 billion, he can do whatever he wants. But when Khosla left his longtime job as a partner at legendary VC firm Kleiner Perkins Caufield & Byers in 2004, he put more than $100 million of his own money into what he likes to call "science experiments" that he thought had at least a tiny chance of changing the world.

"It's a lot more fun for me than buying a yacht," he says.

He called his new firm Khosla Ventures. Khosla speaks at The Daily Beast Innovators' Summit in New Orleans on Friday.

Since 2004, he has become known for surprising investments, outspoken opinions, and fearless optimism about the potential of technology to address the world's problems. Khosla has championed ethanol as a replacement for gasoline, bad-mouthed environmentalists who he feels misunderstand how change happens, and done well enough to raise vast amounts from institutional investors. Last year he even hired Britain's former prime minister, Tony Blair, to advise his company on the global political implications of its many activities.

At Kleiner, Khosla focused especially on telecommunications-related businesses, but Khosla Ventures instead has mostly emphasized energy projects. As a telecom investor, he was extraordinarily successful. His biggest triumph was seeding a company called Cerent in 1997 and selling it just two years later to Cisco for almost $7 billion. Now he sees an even bigger global opportunity.

"We have 500 million people with a decent lifestyle and 5 billion will want that within a relatively short period of time," he explains. "So do we have sufficient resources? The answer is no."

For him, it is a given that technology is the way mankind can address this fundamental challenge.

"The only way you multiply resources is with technology," he continues. "To really affect poverty, energy, health, education, or anything else—there is no other way."

He sees solving the world's energy problems as key to our collective success and survival, so the upside for successful innovations could be gargantuan. But he's not limiting himself only to energy.

Khosla describes the creation of Khosla Ventures as a reaction in part to his upbringing in India, where he became convinced that, as he puts it, "economic gravity always wins."

To him, what matters in considering any innovation today is how it could be distributed on a mass scale to consumers in places like India and China.

"What's the price that will convince people in the developing world to adopt these technologies?" he asked in a recent interview. He calls that the "Chindia price."

Thus he believes, for example, that electric cars are a waste of time. He thinks we must figure out where the most passenger miles will be driven and put our money on those vehicles if we want to really affect the planet. For him, the all-electric Chevy Volt and the luxury Tesla, and even the hybrid Toyota Prius (which he has called "greenwash"), are meaningless as vehicles for change, so to speak.

"If most of the miles are going to be driven on the Tata Nano," he says with conviction, "let's put our money there. The day it was announced they took in 200,000 orders." (The Nano, a full-featured vehicle, is now for sale in India for about $2,200. He's not an investor.)

When Khosla Ventures started, he used only his own money, he says, because he didn't know if his theories would generate real financial gains. Now, as he continues to invest in energy-related technologies and expands to other projects that will affect people in the developing world, he's found there really is money there.

For instance, after the recent initial public offering in India of a company called SKS Microfinance, he made a profit of more than $100 million, a roughly 37-fold return, on a company he invested in four years earlier. That's the kind of deal that leads to support from institutional investors.

Khosla says he is not doing it primarily for the money, and says he told investors when he was raising funds last year that they were investing more in radical change than in an opportunity to make a profit. He marvels that so many of them decided the two were likely to go together and that he thus raised $1.3 billion in total for two different investment funds.

Khosla says what we have to do to remediate global poverty is seek what he calls "black swans"—technologies with rare and unexpectedly powerful effectiveness. "My approach is to take something which has a 90 percent chance of not working, and try that," he says. "But if I have 100 investments and there are 100 funds like ours, and 10 percent of the bets are breakthrough, the world can become a very different place. That's the only way 5 billion people can enjoy the lifestyle that only 500 million have today without creating a global resource crisis."

Continues the always-exuberant Khosla: "We've got to take more shots on goal."

Here an example of a technology that excites him now: a tiny fuel-cell electric generator designed to power cellphones in the developing world.

"Over 50 percent of people in Kenya have cellphones but only 15 percent have access to electricity," explains Khosla. "So users now come to a central place where somebody uses lead-acid batteries to charge their phones."

The alternative device—made by a company called Point Source Power in Alameda, California—is a solid oxide fuel cell installed in an Altoids tin, then powered with a small amount of fuel—which could be cow dung, coal powder, or other substances.

"Close the Altoid box, throw it into your cooking stove or wood fire, and charge your cellphone using the wire that comes out," says Khosla. He claims that by next year it can be produced cheaply enough to sell it for $3.

"The only way you multiply resources is with technology. To really affect poverty, energy, health, education or anything else—there is no other way."

For Khosla, cellphone charging, automotive drive trains, new techniques for carbon sequestration to address climate change, and microfinance are all just facets of the same project—making money while making progress.

"I did a talk once for George Shultz and Condi Rice on an energy task force," he recalls. "I told them their forecasts were fundamentally the problem. They extrapolate the past and tell you what's possible in the future. But the right model is to invent the future. We're in a battle between extrapolating the past and inventing the future."

He is resolved to win.

David Kirkpatrick writes about technology for The Daily Beast. A former Fortune reporter, he is the author of The Facebook Effect: The Inside Story of the Company That Is Connecting the World.