Biff

How should we fund innovation?

Rory Sutherland has a great line: "Most business is probabilistic, but everyone in business wants to prove and pretend that it's deterministic." This is entirely consistent with our recent note, Strategery.

Think of all the consultant PowerPoint presentations you have suffered through with the fine print and the artistic graphics. Recall all the investor spreadsheets laying out exactly how the future will play out and discounting the cashflows back at the precise rate to arrive at an determination of fair value.

I often think of Goldman’s Law, named after the writer William Goldman: “Nobody knows a goddamned thing.” He meant that anyone who thought they could predict which screenplay or which film would be successful at the box office was a fool; people are surprised all the time.

This is true of almost everything.

Only a fool is certain.

Nowhere is this truer than when it comes to startups and growth companies. Nobody can say with perfect certainty that a company will succeed or how successful they will be. Even when it’s pretty obvious that the young firm is onto something, it’s unclear how much they might be worth. When Google started up at Stanford and they went around Sand Hill Road, there must have been many firms who passed. After all, why would the world need a search engine? That problem’s already been solved, son. Haven’t you heard of Yahoo! or AltaVista? What the hell is a search engine anyway? Directories are the way we do things.

Having an informed view of how successful something could be is important because it dictates how much one should be willing to invest in it and/or how much time one should allocate to it in terms of helping it grow.

Moving on to a second line of inquiry, “they” tell us all the time that “the science is settled.”

Conveniently, this pointy-brained consensus always supports “their” policy recommendations and regulations. Setting aside the absurdity of saying that the science is settled, generally, because it is something that evolves, replacing its prior understanding of the world with newer better theories, all of which are testable, we can still recognize the controversy of some of “their” assertions.

These are nowhere less important than when it comes to claims about the environment. If they’re wrong, we’ll end up reversing hundreds of years of economic progress; this is something we should consider thoughtfully.

“They” don’t seem to be serious people or at least cognizant of the way the world works. “They” tell us that we have to change almost every aspect of the way we live. Immediately. “They” want to take control. Here’s Vaclav Smil:

“Also, a close reading reveals that these magic prescriptions give no explanation for how the four material pillars of modern civilization (cement, steel, plastic, and ammonia) will be produced solely with renewable electricity, nor do they convincingly explain how flying, shipping, and trucking (to which we owe our modern economic globalization) could become 80 percent carbon-free by 2030; they merely assert that it could be so.”

Of course, if we don’t act on their assertions then “they” tell us the world will end in twelve years. (This seems to be a rolling target, but it has the twin merits of specificity and confidence.) None of these climate change assertions are falsifiable, by the way. Presumably, we started using the term climate change instead of global warming when things got unseasonably cool for a couple of consecutive years and the hoi polloi stopped going to the Church of the Blessed Doomsayer. Popper would say that this whole climate change hypothesis is pseudoscience. “They” would say climate change is not a hypothesis; it’s indisputable fact. Literally, you are not permitted to question it, at least not in civilized company.

Putting these two phenomena together, it is not unreasonable to characterize a government fund that throws billions of dollars at climate change startups and growth companies as pseudo-scientific foolishness. That’s the charitable explanation. The not-so-forgiving interpretation is fraud.

Here’s the Wall Street Journal talking about the Department of Energy’s Loan Programs Office:

“Mr. Shah isn’t a household name—unless your household includes lobbyists, financiers or crony capitalists. Those are the clients of Mr. Shah’s fief, the revived Energy Department Loan Programs Office. Last humiliated a decade ago, it’s part of that crack DOE bureaucracy that bet on such green tech ventures as Abound (the failed solar company), Fisker Automotive (the failed electric-car maker) and A123 (the failed battery maker). “This announcement today” is about “investing in the infrastructure and technology of the future,” crowed Vice President Biden in 2009, unveiling a $535 million DOE loan for a solar outfit he promised would power 500,000 homes and create 1,000 jobs. That outfit was Solyndra.

“As if to prove that anything Mr. Biden could botch 10 years ago he can botch bigger and better now, the loan office is back, baby. Americans gasped at the audacity of Barack Obama’s $814 billion stimulus bill in 2009—and of gambling some $80 billion on clean energy—but that’s peanuts. The Biden spending rampage has bestowed on Mr. Shah, director of the loan department, a stunning $400 billion to hand out to green companies too risky for traditional lenders, or too politically powerful to turn down. According to a July Journal story, the “pile of cash is at least 20 times as big as most private green-energy funds.”

“With that kind of funny money, Mr. Shah and DOE aren’t restricting themselves to small-time bets. The agency agreed to a $1 billion loan for Monolith, a company that promises to make hydrogen out of natural gas. Sunnova, a solar company, landed a $3 billion loan guarantee. Then there are all the real paupers. General Motors and LG scooped up $2.5 billion to build electric-vehicle battery plants. Ford landed a record $9.2 billion battery commitment. The Ford loan would be $3.3 billion larger than what the company borrowed during the Detroit meltdown of 2008-09.

“The Obama-era loan office was tarred by accusations of cronyism; dollars had a way of going to the politically connected. Now Sen. John Barrasso (R., Wyo.), ranking member of the Senate Energy and Natural Resources Committee, and Rep. Cathy McMorris Rodgers (R., Wash.), who chairs the House Energy and Commerce Committee, have sent a letter to Mr. Shah demanding answers about an October report in the Washington Free Beacon. It claimed a private trade association Mr. Shah founded as a “networking hub” in 2017 has “become a gatekeeper for companies seeking billions of dollars in financing from Shah’s office.”

“The report explains that the Cleantech Leaders Roundtable didn’t even “have a website until three years ago,” though in the year after Mr. Shah left its revenue “more than tripled.” It says Cleantech “hosts sold-out receptions featuring Shah for its paying members.” In September Cleantech and the loans office “co-hosted an invitation-only conference” in D.C. “for companies looking for loans—and Cleantech Leaders was in charge of the invite list and ticket sales.””

This was a longish quote, even for me, but it’s important. Embedded in this bureaucratic monstrosity are several assumptions. (It’s order of magnitudes larger than venture capital funds that are considered large.)

Assumption #1: the future is knowable.

Assumption #2: some guy nobody has ever heard of has a unique knowledge of the future.

Assumption #3: if you knew the future (giving you an unbeatable edge), say because you were a time traveling Biff, then you’d want to put as many chips on the table as possible.

Assumption #4: if you really wanted to put money to work in the startup space, there is no other feasible alternative

How’d he do? He couldn’t write checks fast enough. Strangely, people wanted tickets to his events even more than they wanted to buy Hunter Biden’s artwork.

Of the investments noted in the Wall Street Journal quote, Sunnova subsidiary Sunnova TEP Developer LLC sought the cold comfort of Chapter 11 in June 2025.

‘Sunnova TEP Developer, a residential solar and energy storage developer, and subsidiary of Sunnova, filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas.’

The parent Sunnova has had a going concern opinion for some time. Oaktree is in the mix. The Trump administration canceled the DOE loan guarantee in late May 2025. It’s only a matter of time before Sunnova files, presumably. The publicly traded stock is at $0.22 with a market cap of $27 million.

How’s Monolith, the methane company?

‘In 2021, Monolith secured a $1 billion loan from the U.S. Department of Energy’s Loan Programs Office. However, this loan has not yet been disbursed, and its release depends on Monolith meeting certain operational milestones and securing additional private investments. While the $100 million from investors will provide temporary relief, the company needs to resolve its technical and operational challenges to secure the full loan and continue its expansion.’

Either the bureaucrats were too slow to disburse the money (they got lucky), they inserted some protective language in the guarantee, or they couldn’t find a lender who would rely blindly on the federal guarantee and who insisted on inserting the protections before releasing the cash.

It’s not unreasonable to think that “Biff” Shah was equally bad at forecasting the prospects for his other investees in the Cleantech space.

Shah just lit the cash on fire. I’m sure the people who bought tickets to the Cleantech events were happy.

What if the government made the following assumptions instead?

Assumption #1*: the future is uncertain.

Assumption #2*: we don’t know which investors will have the hot hand and which ones will run cold.

Assumption #3*: we should put our chips on the table slowly as we learn.

Assumption #4*: there are lots of investors we could partner with.

Instead of relying on Biff, we should pick thirty or fifty venture capital funds with track records and other institutional clients, give them an initial allocation of capital, tell them there’s more where that came from if they do well, and tie their fees to success.

Instead of using this for Cleantech boondoggles, we should replace the way we fund science and pure research (not for crap like “a prehistory of metabolic rift, Marx’s term for the disruption of energy circuits caused by industrialization under capitalism”).

That is, instead of giving the money through the universities, we fund companies or projects. If they happen to be started by professors, great. But the university bureaucracy doesn’t get a taste.

Corruption, inefficiency, or whatever we want to call this stuff are luxuries that we can no longer afford.