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An eco-designer eyes clean tech

William McDonough brings his eco-intelligent perspective to clean technology investing. Can he make the world listen?

William McDonough is an eco-innovator.

The renowned architect and designer has made the notion of sustainability central to everything he builds. He's behind the Ford Rouge Factory, which uses a "living roof" made of plants to clean storm water and cut down on energy costs. He designed a Swiss carpet factory that avoids hazardous chemical dyes and emits water clean enough to drink. He's also active in China where he has been designing entire Chinese cities for millions of inhabitants.

Now, McDonough has also become a venture capitalist, one of a growing cadre of investors and entrepreneurs developing so-called clean technologies to make more efficient use of natural resources.

McDonough's big idea, summed up in his book Cradle to Cradle, is that products can be designed to benefit the environment, as well as people and businesses. So instead of creating a sneaker that uses toxic plastics like PVC and ends up as landfill material, McDonough and colleagues worked with Nike on "sustainable design" practices that reduce waste and energy use.

Better yet, according to McDonough, a product--a shoe, car, building or carpet--should be made of materials that become "nutrients" to other products at the end of its life.

CNET News.com's Martin LaMonica moderated a discussion with McDonough about clean technologies at the Cleantech Venture Forum in Washington D.C. in October where McDonough spoke to investors. What follows are edited excerpts from the panel.

Q: How do you incorporate your ideas (on ecologically intelligent design) into your role as a venture capitalist?

McDonough: There are three fundamental aspects to this that really excite me in becoming a VC. I see it as the fastest form of R&D, because we can make lots of bets. A lot of the big corporations I work with can't make lots of bets. They make one or two huge bets and if they're wrong, it's a really big bad bet.

Another is I believe that commerce is the engine of change. I really think it is not regulations that will change the way the world moves to cradle to cradle. It will be commercial high-speed activity.

I built the first solar-heated house in Ireland in 1977, which is a signal of my optimism because there's no sun in Ireland. But it worked great and it still does.

And the third thing is scale. One of the things I learned working with my (venture) partners is that we're looking for velocity but we're also looking for scale.

I can make introductions within companies, but the use of it is relatively small. So I created a "green roof" business with Ford. It creates a new kind of business, but it's going to take a while to incubate the green-roof business. I conceived of it for Herman Miller company in 1992. Slow.

What are technologies that you see as promising? Do you focus specifically on building-related technology, or just broadly tech?

It's broadly tech. There are a lot of control systems that are going to be used that we are looking at.

But one of the things that we are looking at on the "scale" question is if you look out in the future of fuels and energy (it's clear) the future of energy if go out a couple hundred years is coal. It's going to be the cheapest and most ubiquitous. So we'll be burning a lot of coal--"gasifying" coal.

The real issue in the clean tech, and the energy sector in particular--and we also got water and materials which we are looking at large scale --is we have to get solar energy below the price of coal.

If you look at the Chinese, they understand that. If the Chinese take solar to scale--I'm sure they will, we're involved in this--it will drop the price of solar dramatically.

And anyone in the States who complains about it--"It's the Chinese getting all the work again"--will realize that for every job making a solar collector, there are four jobs deploying solar. So the Chinese will be giving us a huge gift when they drop the price of solar below the price of coal by going to scale because it will give us our own indigenous energy and massive job creation. And I can promise you that the Chinese will never be able to capture American photons. But they may own the companies that do (laughs).

The main thesis in your book is that there are different ways of designing things so that they are ecologically friendly. What reception do you get to these ideas? Do you find skepticism? Do you always have to make an economic argument? How do you sell these ideas?

That's a great question. For most humans, the ideas are common sensical. We have not yet found a CEO, who when talking about doing their headquarters,---and we did Nike's, did Kraft, did IBM's European headquarters, we're now doing VMware's, we work with people like Google--I have not met one CEO yet who has ever said, "Give it to me toxic." Not one.

And I've also found that we use economic arguments with people who use economic language and this is just common sense. So if you can't make an economic argument, you don't get to do it.

But what we do with solar, for example: We use what we call anticipatory design. So we'll say we won't put solar collectors on your building right now because your shareholders are not going to be happy because the economics may not be there right now. But we'll design the building to receive them as soon as they are economical.

So when the lines do cross, the building's totally ready to receive them. And all CEOs we work with would love that because it's a very strong, simple prospect that doesn't cost them.

People here want to start companies. Is there a design element to creating a company? Do you use some of these concepts of sustainability as an investor?

One of the things we do is look at the companies and figure out how to make the markets for them. For example, we can look at building materials and technical systems--because I come from the world of customers; I work with products all the time. We're designing cities for 14 million in China right now. I have a sense of what they're looking for. Will the developers building cities buy this or want this? And can we take companies we are working with and say, why don't you design it and take it into this market. I also work with big corporations like BASF so we can take it to them and others and say, "Is this something you'd buy?"

Is that where you see the demand coming from: large companies and governments? Are they the ones driving demand for clean tech or will we see smaller firms buying these goods as well?
I think we'll see all of the above. The real question is: where is the velocity and where is the scale? I think the velocity is in the commercial sector and I think the scale is in the commercial sector. The regulatory environment is obviously very critical for a lot of this and we're seeing a lot of regulations in Europe. They're going to drive global standards.

So a lot of the (start-up) companies we look at will need to meet global standards for quality and everything else. As long as we can do that with an economic framework, we'll be open to the world markets, which will help us in our scale.

You said that you're optimistic. Some people have been working on clean technologies, like solar, for years. It seems solar has been just around the corner for a long time. What is it that gives you optimism now? Is there something changed or has the technology progressed or are people just paying attention to this more?
I'm an optimist. I built the first solar-heated house in Ireland in 1977, which is a signal of my optimism because there's no sun in Ireland. But it worked great and it still does.

I've been watching this carefully. I developed patents in wind in 1981. So I've been around this block a few times. And I think that's where my value is now: as an advisor in this space. I've been watching this happen very slowly.

Just remember in 1973 (Saudi oil minister) Sheikh Yamani...they asked what would (OPEC) do when there is competition for oil. And he said, "We'll just drop the price of oil every time there is competition."

Which is what has been happening.
Which has been exactly what they did every ten years and it just destroyed clean tech and energy. He said they would do it. He said it right out loud. They followed through on their plan. It's not like they were duplicitous.

At the same time, he was asked: When do you think we'll be at the end of the age of oil? It was an amazing answer. He said, "I don't think we'll ever see the end of the age of oil."

But I can tell you this: the Stone Age didn't end because we ran out of stones. So I think that's the question in this room: Are you making stones?