by Eric Wesoff
May 26, 2016

Photo: Steve Jurvetson

The LightSail Energy saga had all the makings of an epic Silicon Valley startup success story.

Danielle Fong, girl genius, drops out of a few schools (like Steve Jobs!), moves to the startup capital of the world (well, close -- Berkeley), raises big money from celebrity investors, and goes after an enormous societal problem (cheap grid-scale energy storage).

Billionaire investors Peter Thiel, Bill Gates, and Vinod Khosla (and others) invested more than $70 million in pursuit of a compressed-air energy storage system that doesn’t rely on underground caverns as a container. LightSail would use tanks as containers, along with a new sort of quasi-isothermal compression.

Cheap, abundant energy storage could change the nature of the electric grid and transform intermittent wind and solar power into baseload energy. (The nascent energy storage market is growing -- the U.S. deployed 221 megawatts of storage in 2015, up 243 percent over 2014.) But LightSail has had two rounds of layoffs in the last 18 months (leaving about 15 employees from what was once 60) and difficulty raising additional funds, all while pivoting to an adjacent application (gas storage tanks) with a shaky path to revenue.

Almost all VC-funded startups flounder or fail; it's a Silicon Valley and venture capital truism. We interviewed or corresponded with more than 10 current and former LightSail Energy employees, consultants and investors to understand the downfall of this firm. All sources wished to remain anonymous.

"Experience is a honey trap"

Let's get back to the billionaires. What if Khosla, Gates and Thiel believed that seasoned industry veterans were not the right people to lead this effort? According to one of our sources, part of their investment thesis was that "experience is a honey trap," and the investors felt that "breakthrough innovation cannot be developed incrementally, and therefore a naive perspective was needed."

"For LightSail, this was reinforced by the evidence that the staid energy business had not solved the big problem of energy storage (except for pumped storage hydro), despite a century of knowledge that storage was vital," the source continued.

Khosla, an early investor, is not one to leave the hiring of initial staff to chance. It's the one opportunity that the founders and investors have to establish the company's DNA. Khosla has written extensively on team-building and the organizational culture of startups and fancies himself an expert in this arcane art. He writes:

There is always talk of startup culture, but it is the founders and their first round of hires that define that culture. 

In CEO search, “leadership” and “team building” or “aggressive hiring” are far more critical than “domain knowledge.” However, in some position or areas where skills are rare, specific qualities (like yield in solar cells or battery manufacturing) may be critical and should be given more weight than “leadership."

Gene pool engineering of a team, to add genes from all areas/disciplines/backgrounds, is vitally important to managing the risks and opportunities a startup has.

When Thiel invested in the company in 2012, he said in a statement, “LightSail is run by engineers, not salespeople, and it promises to be one of the first true alternative energy storage companies.”

So, that cliché about going with an experienced, industry-savvy team that has built and sold companies before? It applies to startups -- until it doesn't. Look at Zuckerberg, Gates, Jobs, Ellison and Dell -- dropouts all. Page and Brin dropped out of Stanford's Ph.D. program. Look at Theranos' CEO. VCs now see dropping out as a feature, not a bug. Thiel encourages it. (He also encourages reading Ayn Rand.)