4 months ago NEWS CONTRIBUTORS Comments Off on Suggestion Box
Ideas and Suggestions
IDEA: Since it is impossible to undertake even the earliest stages of a Department of Energy funding application without a huge government law firm running the entire communication and watch-dogging process with DOE, why not provide funding offsets for applicants who can’t afford the $350,000.00+ set of legal and lobby fees required to apply to the DOE? 98% of U.S. domestic invention and innovation has, historically come from under 5 person companies who could never afford $350,000.00 legal fees for funding applications.
Since the DOE serves the people of America, and it is a disservice to America to exclude innovation, and technological improvement, It seems essential to assist American innovators who can’t afford epic legal application services. It also puts America at security and economic risk to have a taxpayer funded program which threatens domestic security and economic opportunity by helping domestic adversaries gain the advantage. Darryl Siry, Tesla’s ex-marketing head says it well in this article:
In cleantech, and in particular alternative fuel vehicles, the capital requirements for companies bringing a car to market in significant numbers can be extraordinarily high, reaching into the hundreds of millions of dollars if the company wants to build its own manufacturing facilities.
To a venture capitalist, this capital requirement can be daunting. This is why government financing is so attractive. In the case of the advanced technology manufacturing loans, the DOE steps up for 80 percent of the total amount needed. Private sources fund the other 20 percent. This amounts to free leverage for the venture capitalist’s bet, with no downside. Hedge funds historically used massive leverage to generate outsized returns, but if the trade turns against them, that same leverage multiplies their downside and can lead to financial ruin. In the case of the DOE loans or grants, the upside is multiplied and the downside remains the same since the most the equity investor can lose is the original investment.
The proposition is so irresistible that any reasonable person would prefer to back a company that has received a DOE loan or grant than a company that has not. It is this distortion of the market for private capital that will have a stifling effect on innovation, as private capital chases fewer deals and companies that do not have government backing have a harder time attracting private capital. This doesn’t mean deals won’t get done outside of the energy department’s umbrella, but it means fewer deals will be done and at worse terms.
According to Earth2Tech, venture capitalist John Doerr commented on this at the GreenBeat conference earlier this month, saying “If we’d been able to foresee the crash of the market we wouldn’t probably have launched a green initiative. Because these ventures really need capital. The only way in which we were lucky I think is that the government stepped in, particularly the Department of Energy. Led by this great administration that put in place these loan guarantees.”
Several sources within startup companies seeking DOE loans or grants have admitted that private fundraising is complicated by investor expectations of government support. None would speak publicly due to the sensitivity of the issue and the ongoing application process.
Aptera Motors has struggled this year to raise money to fund production of the Aptera 2e, its innovative aerodynamic electric 3-wheeler, recently laying off 25 percent of its staff to focus on pursuing a DOE loan. According to a source close to the company, “all of the engineers are working on documentation for the DOE loan. Not on the vehicle itself.” Another highly placed source at Aptera told Wired.com many potential investors wanted to see approval of the DOE loan before committing to invest.
As a result, the vibrant and competitive market for ideas chasing venture capital that has been the engine of innovation for decades in the United States is being subordinated to the judgments and political inclinations of a government bureaucracy that has never before wielded such market power.
A potential solution to this problem may seem counter-intuitive. The best way to avoid market distortion would be for the DOE to cast the net more broadly and provide loans and grants to a larger number of companies — which ironically means being less selective. Subject to the existing equity matching requirement, this would allow the private markets to function more effectively in funding a broader range of companies and driving more innovation. Several innovative companies with great potential have been in the DOE pipeline for many months. Perhaps it is time for the DOE to stop playing favorites and start spreading the love.
Wired.com contacted the Department of Energy for comment but did not receive a reply.
Disclosure: Darryl Siry was the chief marketing officer of Tesla Motors from December 2006 until December 2008 and is a special advisor to Coda Automotive, which has not sought an Advanced Technology Vehicle Manufacturing loan.
Photo: Ford Motor Co. Energy Secretary Steven Chu addresses Ford employees on June 23, 2009, after announcing the automaker will receive a $5.9 billion loan.
Further to the above: THE VENTURE CAPITOL CARTEL worked with Department of Energy Staff, particularly Steven Chu, the Head of the DOE, to black list applicants that competed against applicants who were their friends. In other words, a deal was made between Steven Chu’s people and the technology VC’s so that neither DOE, nor the VC’s would fund any company who competed with Fisker or Tesla, the Cartel’s insider babies. Congress and the FBI need to get in the mix here and fix this broken part of the system.