Russ: This is a BusinessMakers WebXtra, a continuation of the radio broadcast interview with Matthew Nordan of Venrock. It's interesting now that you're a venture capitalist and you're out there making investments in these technologies in a period of time when there is an abundance of federal government money that comes into some of these companies as well. Is that just my wrong perspective or is that true?

Matthew: No, I think that is what it is. For example, there's a battery company called A123 Systems that went public on the NASDAQ, started out the day with a valuation around a billion dollars and ended it around two. So it was a pretty successful IPO -

Russ: Nice, yeah.

Matthew: - late last year and, you know, they would not have been able to do that filing and to produce batteries if they had not received, you know, well north of $100 million dollars of government cash to go build a battery manufacturing plant in the Midwest and there's a question in the circles in Silicon Valley and in Boston of whether if you want to be in business as an investor energy, do you have to be best friends with the government? It's an open question.

Russ: Okay, well, and that used to not be the case, right? But that is, now.

Matthew: Well, I'm not sure Uncle Sam's doing us any favors.

Russ: Okay.

Matthew: You know, we think of ourselves in the U.S. as being experts in capitalism, red in tooth and claw.

Russ: Right.

Matthew: And I think at this point, we're taking some lessons from folks in China or in Western Europe about how to do this right. If you want to encourage the creation of a domestic industry in energy, which is the exactly right-minded thinking -

Russ: Right.

Matthew: - about where this money is going - sort of a couple of ways you can do that. You can do it on the supply side or the demand side. The supply side is that you go out to companies and you say, "Here's a check, go build a factory. We hope people buy your stuff."

Russ: Right.

Matthew: That will guarantee that a factory will be built. It will employ people for some amount of time. Doesn't give that business an edge in creating a market. The other way that you can do it is to go and say, "You know what, we're gonna create an incentive for folks to buy Thing X," and assume that, you know, if you do that the markets going to create it - the capital will follow. It's going to come anyway.

Russ: Right.

Matthew: You don't have to give people money to build the factory. If there's going to be some demand there, particularly if it's, you know, demand that doesn't exist because of past distortions or whatever else. It sort of cleans up the system.

Russ: Right.

Matthew: It's a way of pulling it off. That's how the Chinese have approached electric vehicles and they have not gone to battery makers and said, "Here's your cash, build a factory."

Russ: Right.

Matthew: Gone to the 13 largest cities and said, "You each get 1,000 electric buses. May the best technology win. Go."

Russ: Wow.

Matthew: Those batteries may not be manufactured in Guangdong province, right?

Russ: Okay.

Matthew: You may not create jobs in the short term.

Russ: Okay.

Matthew: But if you want to guarantee that you're going to create a place that's the epicenter of electric vehicles, you've now done a pretty good job of doing that.

Russ: But is that the same thing as just a regular standard government subsidy? I mean, we do subsidize solar panels now and, and wind energy, correct?

Matthew: That's true and we subsidize oil, too -

Russ: Right.

Matthew: - to a pretty ridiculous extreme.

Russ: Right.

Matthew: So I think you can argue that if there is a distributed benefit problem that it's good for everybody. If there is going to be, you know, a new industry in clean energy technologies would have to be based in the U.S.

Russ: Right.

Matthew: You think there's an ancillary benefits to that of having lower emissions or less dependent on possibly hostile governments for fuel supply? The problem is all those benefits exist but they don't accrue 'til somebody who's willing to pay for them. That's a market failure and if you're looking at cases where government should step in and do something about it, market failures are probably the one area where everybody would agree that there is a role for federal cash.

Russ: Okay, good point. But it just seems so difficult to come up with a game changer in the energy space that somehow or another comes close to the efficiency of burning fossil fuels. I would assume that you disagree with that.

Matthew: No, actually, I would wholly agree with it. I think a lot of today's clean energy technologies are half steps. You know, they look good. They may make you feel good, particularly if you're concerned about the state of the world. They're not really solving the problem. The history of human beings, right, has been a progression to more and more dense sources of energy. And we used to burn wood. Then we burned coal, there's a lot more energy in coal than there is in wood. Then we started splitting atoms. A lot more energy per unit of area there, right?

Russ: Right.

Matthew: Most of today's energy technologies go in the opposite direction. There is a two gigawatt solar installation - for perspective by the way, a typical, you know, coal plant that would serve a metropolitan area or a nuclear plant, might be, you know, half a gigawatt, one gigawatt -

Russ: Okay.

Matthew: - so two gigawatts is a lot.

Russ: It's a lot.

Matthew: That's getting built in China. It uses solar cells that are about 11 percent efficient at converting sunlight into electricity - which is pretty standard for today. That plant will be 625 square miles in size. That can't be the future, right?

Russ: Right.

Matthew: There's a wonderful analysis done by a British professor looking at what would you have to do in the U.K. if you wanted to get rid of the coal and the nuclear and just use renewables.

Russ: Right.

Matthew: The answer is you'd have to cover two-thirds of the country in solar cells and wind farms.

Russ: [Laughter] Okay.

Matthew: That's not the answer but there is a role for new technologies, either very different types of solar, for example, or new iterations on nuclear to be able to keep progressing toward more and more dense power and meet these needs rather than go in reverse.

Russ: Do you look at any new technologies right now at Venrock that offer at least advancements in this area?

Matthew: Absolutely. We think there is a tremendous long term opportunity in nuclear fusion. The nuclear we're all familiar with is fission.

Russ: Right.

Matthew: And it's breaking atoms apart. Nuclear fusion is the opposite of that. You're putting them together which releases far more energy and does it in a way that does not create radioactive fuels that can then be used in weapons.

Russ: But hasn't that been researched for decades upon decades, unsuccessfully?

Matthew: It was funny. My daughter's seven years old. At her school, recently, they had a textbook drive where you were going in and bringing the new books, getting rid of the old.

Russ: Yeah.

Matthew: Went into the middle school classroom and I picked up the energy textbook that was used when I would have been in middle school back in the 80s.

Russ: Right.

Matthew: And I go to the section on energy and it has this paragraph that says, "Scientists believe that in 30 years, most of our energy needs will be met by fusion reactors like this one." Then for kicks, went to the other side of the room, picked up the textbook they use today -

Russ: Yeah.

Matthew: - it has the same paragraph. "Scientists believe that in 30 years... yadda, yadda, yadda." So there were approaches to fusion that have been tried for a long time -

Russ: Right.

Matthew: - that have been largely unsuccessful. They've had tremendous amounts of government money go into them but there are other ways of approaching fusion, some of which are sort of Rembrandts in the attic. Things that were initially described theoretically as early as the 1930's and '40s but have never really been commercially pursued. We think there's opportunity there.

Russ: That's cool. So let's say, before I let you go, that we have a young, let's say it's a high school junior or senior that's listening to this interview, impressed with how you went from Point A to where you are today and aspires to do their own thing, to become a make-it-happen entrepreneur - what sort of general advice would you give this young person?

Matthew: To make it happen. I gotta tell you, you know, one of the groups of people to interact with a lot in this investment world are folks at business schools and folks at top-tier blue chip business schools. I bemoan the fact - you know, when I go out and meet with groups of these folks - that with relatively few exceptions, there are not many aspiring industrialists in that group. You know you have people who have become enamored with software or pharmaceutical other businesses, really important things, really vital -

Russ: Right.

Matthew: - but they're about moving around electrons or little bits of drugs. When it comes to businesses that bend mental, that make big things that you ship that are heavy - they hurt when you drop them on your foot - the kind of technologies we're going to need to sustain a world approaching, you know, 10 billion people, 15 billion in the next few decades. The world that we'll see our children grow up in. We need industrialists. There aren't that many of them out there. If you look at people who have been successful, even going back earlier in history, going to the genesis of Venrock, to the Rockefeller family. They are not people who went through endless degrees preparing themselves to go through a well-charted path in a career track. They're people who just went out and did it. If they had an idea for a solar cell, an entrepreneur that they admired, they met up with them and tried to figure out through sheer force of will - they would be able to take that idea and turn it into a product and as long as they had that focus, capital would follow, partners would follow, everything else would follow. So you know, if there's somebody out there who is focused on this, interested in this area, stop preparing yourself to do something and do it.

Russ: Matthew, I really appreciate you giving us some of your time.

Matthew: Absolutely. Thank you for having me today.

Russ: You bet. And that concludes our WebXtra interview with Matthew Nordan of Venrock. You're listening to The BusinessMakers Show, heard here and online at theBusinessMakers.com.