Steve Westly could have conflicts over U.S. funds
Ronnie Greene,Matthew Mosk, Center for Public Integrity
04/01/11
In connecting green technology startups with government money, Silicon Valley venture capitalist Steve Westly boasts of a special touch.
"We believe that with the Obama administration, and other governments ... committing hundreds of billions of dollars to clean tech, there has never been a better time to launch clean tech companies," states his company website. "The Westly Group is uniquely positioned to take advantage of this surge of interest and growth."
One of President Obama's most prolific fundraisers, Westly was among guests at January's state dinner for the president of China. A month later, he dined with Obama again at an exclusive Bay Area gathering for prominent high-tech CEOs, including the leaders of Facebook, Google and Apple.
He visits White House staff and, as a member of a government advisory board on energy policy, has the ear of Energy Secretary Steven Chu, whose department hands out the sort of seed money sought by companies that are clients of the Westly Group. He has hosted the president at fundraisers at his home in Atherton.
Business is booming
At the same time, Westly's 4-year-old green business has boomed. Since June 2009, four companies in his venture firm's portfolio have received more than half a billion dollars in loans, grants or stimulus money from the Energy Department, a review by the Center for Public Integrity and ABC News has found.
Relatively few companies succeed in winning such benefits. More than 90 percent of applicants have failed to secure funding in two programs benefiting Westly-backed firms. Securing government aid helps attract investors and can make corporate stars of even small startups.
Funding for Westly Group firms occurred prior to his joining the government advisory board, although an Obama administration proposal after Westly's appointment immediately boosted the stock price of one company.
Westly's ability to straddle the worlds of big-time fundraising, government advising and private financing for startup companies tells a larger story about how business and politicking intertwine at an Energy Department flush with $35 billion in stimulus money.
"It looks like kind of the classic Washington hands washing each other," said Mary Boyle, a spokeswoman with Common Cause in Washington. "He's politically active, he gives money, he gets noticed, he lands on an energy board. ... Firms that he backs are landing these lucrative energy contracts."
In a statement to San Francisco ABC News affiliate KGO TV, Westly said: "The Department of Energy loans mentioned in the report were all awarded before I joined the Secretary of Energy's Advisory Board, and each company went through an open and competitive application process that included significant due diligence."
Growing scrutiny
Obama's focus on environmentally promising technologies while gaining support from clean-tech titans comes at a time when the Energy Department's handling of government largesse is gaining scrutiny.
The Government Accountability Office, the investigatory arm of Congress, raised concerns in a report last year about favoritism in the awarding of some loan guarantees. The Energy Department's inspector general told Congress in March that some stimulus contracts may have been steered to "friends and family."
The Obama administration's efforts to reduce pollution, especially from coal-powered plants, and to lower dependence on foreign oil has unleashed an unprecedented wave of federal aid to clean energy startups.
Four companies in the Westly Group's portfolio received Energy Department loans, grants and stimulus money: Tesla Motors, RecycleBank, EdeniQ and Amyris. Tesla and Amyris went public with stock offerings in 2010.
Clean-tech superstar
Over the last four years, Westly, California's state treasurer from 2003 to 2007, emerged as something of an entrepreneurial superstar in the clean-technology industry. In August, with his appointment to the Energy Department advisory board, he gained a seat at the table, helping to set national priorities that affect his business interests.
On the White House's recommendation, Chu appointed him to the 12-member board, a government-stamped seal of approval as the Westly Group pursues a $175 million round of fundraising to expand its portfolio. Westly cites that appointment on his company bio.
Meeting minutes show he is leading a Chu subcommittee exploring "building energy efficiency." In his venture capital firm, Westly is actively investing in energy-efficient building materials, an area he describes as something of a new investment frontier.
A prized jewel for a Westly investment came in February, when the Obama administration proposed to stimulate sales of electric cars by offering a $7,500 federal rebate to buyers.
Stock in Tesla, which went public last year, rose 6 percent on the news. Westly sat on Tesla's board for more than two years, and though his firm recently sold its nearly 2.5 million shares, he remains a shareholder.
Potential for conflict
Some executives of companies financially supported by Westly's venture firm acknowledge that his activities - which include arranging introductions for them and helping them navigate bureaucracies in Washington even as he serves as an adviser to those bureaucracies - create the potential for a conflict of interest. But they say involving industry expertise is unavoidable, even necessary, as the government strives to spur adoption of new technologies.
"This is the sort of conflict the DOE and USDA and other agencies run into when they take a step - which I think is a good one - in trying to involve people from industry in helping to advise and set direction," said Kinkead Reiling, co-founder of Amyris, a biotechnology firm that landed a $25 million Energy Department stimulus grant in 2009.
The White House and Energy Department deny that political supporters of the president have any edge as they compete for funding.
Re-election campaign
Westly is at the vanguard of a new round of fundraising - the need to gather unparalleled sums of money for Obama's 2012 re-election campaign. As a top fundraiser, Westly is in elite company: He is one of 52 so-called bundlers who raised more than $500,000 on Obama's behalf in the 2008 race, according to records maintained by Public Citizen.
In early 2007, he founded the Westly Group, a Menlo Park venture capital firm created to tap into the growth of clean tech by linking companies with green ideas to big money to back their projects. The firm soon hit significant pay dirt.
In early 2007, about the same time that he founded his firm, Westly gave $2,300 to Obama, part of a series of contributions to political campaigns. Westly co-chaired California's Obama for President Campaign and has contributed more than $360,000 of his own money to Democratic campaigns and causes since 1998, according to federal election records compiled by the Center for Responsive Politics.
After Obama's election, Westly was rumored to be on the short list to become the president's energy secretary. The job went instead to Chu.
Questionable oversight
A GAO report released this week cited questionable government oversight of a federal loan program that aided Tesla and four other car companies. Documents obtained by the Center for Public Integrity under a Freedom of Information Act request show that one of the firms turned down for a loan complained of unfair treatment and of being ignored.
"DOE reviewers never even talked to the founder, inventor, engineers, project leads or primary contractors to obtain additional information," said the letter from the California electric car maker, XP Vehicles Inc. "Why was staff at DOE during the course of the year positive about the outcome and never asked for additional information?"
As a member of Chu's advisory board, Westly is allowed to discuss policy issues that could affect venture capitalists like himself. Energy Department policy states only that he is not to take part in matters that would directly affect his company.
The department said it sought Westly's expertise as a venture capitalist. Asked about his investment in green building materials even as he leads Chu's committee on the topic, the department said Westly's investments were factored in when deciding his role.
Chu did not respond to requests for interviews.
sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/04/01/MN2E1INMK1.DTLThis article appeared on page A - 1 of the San Francisco Chronicle
www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2011/04/01/MN2E1INMK1.DTL
