Obama's Innovation Strategy: Behind the Curtain

Can the Department of Energy create jobs?

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The $64,000 question going into 2010 is: How can this economy create jobs? As one of many answers to that question, the Obama administration has championed giving loans and awards to innovative companies through programs such as the Department of Energy's ARPA-E. But it is not a simple journey from funding these programs to actually creating jobs. There are many hiccups along the way. For example, Darryl Siry recently wrote in Wired about how the Department of Energy can actually stifle innovation by making the cleantech sector and other innovative industries cater to its whims.

[See 5 Surprises in the Latest Jobs Report.]

One start-up that came to the OnDC conference (I blogged about that earlier this week) that is hoping not get left out of the cleantech investment shuffle is CFX Battery, a Southern California start-up founded in 2007 to develop and sell longer-lasting batteries based on Caltech research. Robert Grubbs, Caltech professor and 2005 Nobel Laureate in chemistry, helped found the company and provide it with brainpower. Next year CFX hopes to roll out everything from advanced lithium batteries for powering new electric cars to rechargeable batteries that could be used by soldiers in Iraq to reduce the amount of power supplies they need to carry.

[See Google Unleashes a Diverse Army of Android Phones.]

CFX's field has received special attention from the federal government. The stimulus created the $2.4 billion Electric Drive Battery and Component Manufacturing Initiative, which in August awarded grants to 48 companies out of 165 applicants to develop electric batteries. Joe Fisher, CFX's CEO, said the company simply wasn't ready to apply for the grants. But his company also lacked certain connections that some of the winners possessed. "[Some of them] lobbied pretty hard and built plants in swing states," says Fisher.

(Johnson Controls, a public company based in Milwaukee, received the largest grant—$299 million. Earlier this year they made plans to build a plant in Holland, Mich., that will hire over 500 workers by 2013.)

Fisher hasn't given up. He says CFX will apply to the ARPA-E program, and is considering opening a Washington office to help secure that funding.

But creating a D.C. presence isn't affordable for many firms. "We've been able to raise money without the government. Not everyone in this economy can do that," Fisher says.

Even firms in the D.C. area find tapping into the new federal programs difficult. "As a small business it is pretty daunting," says Jeremy Parsons, CEO of Mantaro Product Development Services, an engineering firm with $4.5 million in annual revenue, located just outside the Beltway in Germantown, Md. In the past Mantaro has applied for Small Business Innovation Research (SBIR) grants—money earmarked in federal agencies specifically to go to research contracts for small businesses. But, as with much in Washington, getting a hold of SBIR money is often about who you know. "I need to find somebody within the DOE who is interested in what I'm doing. You need to have established relationships. Larger businesses can hire the former government employees who know who to talk to," says Parsons.

But the behind-the-scenes deals don't make him sick of Washington. Despite the challenges, Parsons is going to try again to get pieces of the extra money the Obama administration is putting into the DOE and the National Institute of Standards and Technology. "It's so big you really can't ignore it," he says. As long as the commercial markets are seized up, "we can't ignore the federal government as a source of revenue and opportunity."

But once businesses start leaning on the government for help, can they ever really stop? Some argue that the idea that Washington is the new Wall Street might be short-lived. "It's a soundbite without much depth," says venture capitalist John Backus of New Atlantic Ventures. He predicts that the difference in culture between the political capital and the economic capitals of the country is too great to produce a lasting relationship. "Washington is about power, Wall Street is about profit. Wall Street rewards you if you make money. Washington is about picking winners and losers in a way based on political arguments," he says.