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Innovation Wednesday: Al Gore’s Excellent Venture Adventure

Former Vice President Al Gore has added another gig to his already jam-packed resume: venture capitalist. Gore announced an alliance between his firm, Generation Investment Management and the legendary Silicon Valley venture firm, Kleiner Perkins Caulfield & Byers. From a statement issued by KPCB:

Former Vice President Al Gore has added another gig to his already jam-packed resume: venture capitalist.

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Gore announced an alliance between his firm, Generation Investment Management and the legendary Silicon Valley venture firm, Kleiner Perkins Caulfield & Byers. From a statement issued by KPCB:

The partnership will provide funding and global business-building expertise to a range of businesses, both public and private, and to entrepreneurs. As a result of the collaboration, the chairman and co-founder of Generation, former Vice President of the United States Al Gore, will join KPCB as a Partner. KPCB will co-locate their European operations at Generation’s offices in London. John Doerr, Partner at KPCB, will join Generation’s Advisory Board.

Does the man not sleep?

This alliance seems to be the ultimate networking idea. (For more about the announcement– with some great behind-the-scenes stuff – I recommend a recent Fortune piece written by my good friend and former colleague Adam Lashinsky, and co-written by Marc Gunther.

Let’s face it, Gore travels in some pretty heady circles. When I last interviewed the former Vice President for Fast Company Magazine, he told me that he and his wife, Tipper, had dipped a toe into angel investing. It was a tour de force of networking: Gore introduced two notable scientists – Danny Hillis of Applied Minds and David Agus, a renowned physician from UCLA – who were holding piece of a puzzle that would be instrumental or interesting to the other. Agus, had an information processing challenge related to his research with proteins, and Hillis who is famous for being instrumental in developing massively parallel processing, is always looking for ground breaking applications for his methodologies. “David had said to me in a conversation – if we could just process more data faster, we could do so many more things. And I said, ‘do you know Danny Hillis?’” Last summer, the Gores became early stage investors in a brand new venture between Agus and Hillis. “We’re lucky that we’re now in a position where we’re able to do things like this,” he told me.

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I imagine that the Kleiner Perkins/Generation Alliance will be a networking effort on a much grander scale, since the analysts at Generation are clearly finding ideas, people, technologies and concepts in a variety of forms that they are not immediately able to exploit within their own narrow confines. (See Q&A below.) Kleiner Perkins have made greentech a priority since 1999. And, from all indications, KPCB will be able to make good use of Gore and Generation’s insights – their green portfolio has yet to enjoy any sort of liquidity event.

I spoke with a Generation representative this morning, who explained that he expected Generation’s portfolio to change a bit going forward. “As you know, the portfolio consists of 30-50 mostly large cap public equities,” says Richard Campbell. “I expect that to stretch a bit where in the future, Generation will be taking larger positions in smaller public companies.” Campbell envisions a relationship where with pooled research and brain power, Kleiner invests in early stage technologies and entrepreneurs, and when appropriate, Generation steps in at the mid level. “Consider too, the geographical footprint,” he told me. Kleiner has its reach in the US and China; Generation has a strong presence in the US and European marketplaces. “It immediately benefits both.”

But it’s important to remember that it’s not really a “job” for Gore, simply that Gore joined the firm as a representative of Generation. (He’s donating his salary to the Alliance for Climate Protection.) This is a collaboration on many levels, involving representatives of both firms – so the Veep is probably sleeping just fine. But still, his deal making is impressive, and the impact to the environment should prove profound.

This past summer, I enjoyed a lively e-mail interview with Colin le Duc, a Generation partner and head of research. He is the former director of research for Sustainable Asset Management (SAM), a Zurich-based sustainability investment firm. He was able to give me a bit of insight, but only a bit, into the Generation methodology:

Q: How have you been able to meld sustainability research with fundamental equity analysis?

Our integration of sustainability into a traditional equity research framework has been enabled by various things. Firstly, the fact we started with a blank sheet of paper in designing our investment process from scratch when we founded Generation in early 2004. That enabled us to take the best out of traditional processes and the best out of the sustainability research world and meld them into a new, single, integrated investment process. Secondly, our people. Our team is diverse and includes environmental economists next to traditional buy side equity analysts. Thirdly, by virtue of taking a long term horizon and a concentrated investment strategy, we have built a methodology that is designed to build high degrees of conviction in the investment idea. We would have designed a very different investment process if we were doing index type investing for example. Finally, our Chairman Al Gore and our Managing Partner David Blood. The “Blood and Gore” combination at the head of our firm has meant that we have two world experts in the areas we are integrating, namely
finance and sustainability.

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Q: What specific lessons have you learned in your past job at SAM that prepared you for this role?

The main lesson has been to focus on materiality. At Generation we go deep on the most material sustainability issues that affect the long term success of businesses. This is in contrast to a methodology that takes a broad “tick box” approach to researching sustainability. Another lesson has been to adopt a systems perspective with regards sustainability risks and opportunities. This means gaining a fuller, holistic, more complete view of industries and companies over the long term by understanding the dynamic feedback loops inherent in any system.

Q: Did you have to invent new metrics or “screens” in order to find suitable companies?

Our methodology is tailored to each industry based on the most material sustainability theme integrated with traditional economic and competitive issues. So, yes we have new metrics and questions we ask – but they are often company specific rather than screened across the whole research universe. I often characterise our company level due diligence work as “an inch wide and a mile deep”. We haven’t developed any new software, rather we have developed deep understanding of how sustainability affects
industries and companies.

Q: How much time do you spend gathering data from vendors, customers, board members – mosaic theory style -to construct your analyses? Do you survey companies? Do they open their books to you? How big is your analyst/research team? Do you buy in any outside research?

A: Our research is mainly primary. We have a team of 12 doing research on about
100 companies. This gives you an idea as to how concentrated and deep our research is. This is necessary when doing high conviction investing like Generation. We do of course solicit input from a wide variety of sources. This includes the company itself, think taks, brokers, consultants, competitors, suppliers and NGOs. The Analysts at Generation have developed sophisticated networks within their sub sectors and areas of coverage. We leverage that network intensly as part of our due diligence. Companies are
very open to talking to us because we address questions of long term strategy rather than only asking about net Quarters earnings. Our long term focus is in contrast to many players on Wall Street how are only concerned about short term performance. This is an opportunity for Generation and we have found that high quality companies are very open to discussing how sustainability affects them in the long term. We often meet operational management too as well as the CEO, CFO and Investor Realtions folks.

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Q: What companies or sectors intrigue you now?

A: Compliance doesn’t allow me to name specific investments or else I’ll end up in jail! However, some themes we are looking at include using solar for large scale power generation by concentrating the energy. We are also intrigued by next generation biofuels with emphasis on cellulosic processes. We have also looked at the dynamics of Mexican homebuilders.

Q: You want to live in the space where two universes overlap – traditional long-term investing and sustainable thinking. Where do you compromise?

A: There are about 30,000 potential investment targets in our universe of Global Equity – and we only need to find 40 or so high quality companies at the right price. So, we have avoided areas of the market which we knew may rise in the short term but would not make good, long term, sustainable investments. Sustainability is integrated into our definition of business and management quality and, as such, we have a high threshold as to which businesses we want to own. Our research universe expands by us going deeper in areas we know alot about, like solutions to the climate crisis.