Advice to Steven Chu on joining startups: choose carefully

The former U.S. Energy Chief Steven Chu is joining the ranks of politicians and White House officials that leave public office and then dabble in the startup world. A couple months ago Chu announced he was joining the board of Canadian carbon capture startup Inventys Thermal Technologies, and on Monday morning battery startup Amprius also announced that Chu had joined its board as well.

I applaud former politicians taking risks on emerging clean technologies, particularly politicos with stellar scientific backgrounds like Chu who can do their own due diligence. But I’d also issue a word of warning: make selections carefully. There has been a long list of politicians who have attached themselves to high-risk startups that have had very public struggles.

Steven Chu giving an interview in the hallways at ARPA-E

Steven Chu giving an interview in the hallways at ARPA-E

Unfortunate outcomes

A couple months ago, on December 20, former Secretary of State Condoleezza Rice resigned from the board of struggling biofuel company Kior. She had joined the company in the summer of 2011, the same week that Kior was planning to price its IPO. It ended up going public at $15 per share back then, but it’s now trading at less than $2 per share, following a much slower ramp up of production than expected (it’s also got an investor lawsuit).

Rice has joined other boards as well, and is still listed as a board member of energy software company C3. While C3 isn’t a flop, it’s not the software juggernaut that Thom Siebel had intended it to be when he funded and launched it five years ago. Joining Siebel — who made millions off of selling Siebel Systems to Oracle — would seem like a safe bet, but the energy space is hard.

International BatteryAnother former Energy Secretary, Spencer Abraham, is another person that has actively joined the boards of next-gen energy startups in recent years, and he also created The Abraham Group, which advises energy-related companies on policy matters and fund raising. Abraham also is on the board of C3, again, no doubt convinced by the power of the Siebel brand.

But Abraham picked a doozy when he joined the board of lithium ion battery company International Battery. That company reportedly abruptly closed back in early 2012, taking down millions of dollars, some state incentives and promised local jobs. Abraham told me in an interview when he joined the board in 2011 that he had a long relationship with the Chairman of the Board on International Battery.

Not every former official has made bad bets. Former Secretary of State Colin Powell, through Kleiner Perkins, sits on the board of fuel cell maker Bloom Energy. While Bloom Energy has taken awhile to scale, it now has a long list of customers.

Chu could fare better?

Chu’s picks seem pretty decent, though it’s hard to tell when a company is so young. I don’t know a whole lot about Inventys. Based near Vancouver, the startup makes a material that captures carbon emissions from factories and industrial processes with a low amount of energy needed. But they’re backed by the Roda Group, which invested in algae fuel company Solazyme, and made a lot of money off of that exit.

Battery startup Amprius appears to be doing well. They closed on a large round of funding recently and already have their long-lasting battery shipping in a small amount of Asian smart phones.

The reality of working with startups — both in the energy sector but also across all sectors — is that they’re high risk and the majority won’t prosper. But perhaps Chu’s background could give him the technical science chops to be able to better determine which innovations are breakthroughs, which are able to be developed, and which are able to scale.

There’s also been a major learning curve over the past 7 years around cleantech investing, and how to bring early stage energy startups to commercialization. So Chu could also potentially benefit from that history to make better bets.

While a lot of the companies that these former politicians pick to join won’t be huge successes, at the end of the day avoiding a company that turns into a scandal might be the most important thing. To dodge those bullets, avoid companies that are leaning heavily on government incentives for their business model, as well as companies that make claims that seem way too aggressive.