Vinod Khosla Responds to Wall Street Journal Editorial
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Submitted by EFC Team on February 25th, 2011

The following is excerpted from a letter that originally appeared in the Wall Street Journal on February 22, 2011.  Permalink>>
Regarding your editorial “The Range Fuels Fiasco” (Feb. 10) …  Range is in active discussions with alternative biofuels companies to use their gasification facilities with biochemical syngas catalysis companies and other biofuels technology companies. These combinations pencil out to be economic with good internal rates of return but success is never assured in high-risk projects, contrary to journalistic expectations. The project did let us assess what was economic and what was not and how it compared to other technologies. I would not invest in less economic technologies if better combinations were available but it does not lessen the contribution the DOE program made.
Most of the investment was spent on the Range gasifier, the front end of the biofuels project. This gasifier is valuable and can be used with newer biofermentation-based backend processes, an advancing technology that has superseded the chemical catalysis backend originally planned by Range. We should applaud the continued progress, and that entrepreneurs iterate as superior technology becomes available. This is how innovation happens, but the Journal does not really understand innovation.
The editorial fails to critique the heavily subsidized fossil oil business on its access to sub-market-rate royalties and other direct and indirect subsidies, nor the over $7 trillion spent over 30 years on carrier groups in the Middle East to protect our oil lanes! This is a version of incumbency capitalism, where incumbents and their lobbyists have tilted the playing field away from innovation capitalism. Creating competition for fossil oil through biofuels or alternatives like electric cars should be treated as a vital strategic goal for the country, and in the case of biomass, a critical rural jobs engine.
Government support aims to fill the commercialization gap in many nascent industries. About $100 billion was used to support the nuclear industry as it was getting started, support that continues through efforts like subsidized loan guarantees, decommissioning funds and subsidized insurance. Government support of nascent industries drives more innovation capitalism, creates competition and ensures global competitiveness.
The editorial complains that “the result has not been another Google.” Unfortunately, not every venture is a Google and as President Kennedy said, “only those who dare to fail greatly can ever achieve greatly.” Range’s original formulation may not have been successful, but such risk-taking deserves applause, not derision. I invested more in Range than the DOE or anyone else, because I believed in the technology.
I may be wrong often, but over the last 25 years my efforts have generated about $14 billion in profits from under $1 billion from investors. In biofuels we have generated hundreds of millions in profits for our limited partners. I started in this country with less than $300 in my bank account and no other support. I would like to compare this record with your editor’s accomplishments before he chooses to trash my efforts and classify me derisively as the superrich. I will keep taking large risks and shoot to solve large problems.
When we first invested in biofuels, I expected up a 70% to 90% chance of failure (and went on record saying so), and today I’m pretty confident that 50% to 60% of the technologies will succeed. Those are better odds than wildcatting for oil. Intelligent dialogue about when government support is for the social good and when it is a gravy train is necessary. But bigotry only shuts down intelligent dialogue.
Vinod Khosla

 

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