tl;dr: There’s a reason they call it risk capital.

As you’re doubtless aware, Solyndra announced yesterday that it’s shutting down. The CIGS-on-tubes solar module maker raised nearly $2 billion in capital, including more than $1 billion from venture investors and a $535 million government loan. This event is being commentated to death (and will continue to be well into next year’s election, IMHO), but there are a couple of oddly-absent points that deserve raising:

• This was about manufacturing yield, not cheap silicon or China Inc. There’s a common thread running through most of the coverage that goes something like “Solyndra was surprised by a one-two punch of plummeting silicon prices and Chinese solar capacity.” I can’t possibly believe that: Solyndra’s managers and investors were smart people deeply immersed in the solar market and very aware of what economic $/W would be a few years’ hence. My understanding is that the business plan anticipated low-cost competition and expected to win on economics, but manufacturing yields didn’t hold during scale-up and the effective cost of the product ballooned. (I note that Ted Sullivan at Lux Research spotted this in between the lines of the company’s aborted S-1 way back in December of 2009.)
• Failure is a fact of life in venture investing – and energy innovation. VCs provide capital to high-risk businesses that can’t be funded any other way. Most venture investments either fail completely or deliver mediocre returns. Cases like Solyndra come with the territory, and they say no more about all the other VC-backed energy start-ups than Webvan said about Amazon: The whole point is to risk failure, because you have to take on many (informed, balanced, and uncorrelated!) bets for a shot at a big outcome. Those outcomes, in turn, pay for the failures many times over – while improving lives and creating jobs. There’s a legitimate argument about whether taxpayer money should be deployed in this pursuit, but to treat even a very costly cratering like this one as anything other than de rigeur seems silly.