How Biobased Energy, Consumer Goods Will Become the Biggest Vertical in Cleantech

by Richard Herbert (Biofuels Digest) Portfolios may be littered with the bones of first generation biofuels startups, but for strategic investors, the biofuels industry as a whole is far from cold in the grave. In fact, if you ask experts like John May, managing director of the investment banking firm Stern Brothers & Co, he’ll tell you that bio-based energy and consumer packaged goods (CPGs) are embarking on a technological reinvention of industry.
Combined with shifting consumer preferences, the adaptability of this industry will have a substantial impact on what the world of fuels, chemicals, and consumer goods look like 10 years from now.
...“Coke wants a totally green bottle. Consumer focus groups are telling us that if they don’t get on board with this, whoever does is going to take a big bite out of their profits,” comments May. “Those who are under 40 want everything to be green, organic, clean, and healthy.”
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Consumer preference for bio-based fuels is also rising for passenger vehicles, commercial fleets, and within the airline industry. A recent Propel Fuels SoladieselBD B20 pilot program survey in California, for instance, found that 92% of participants would be more likely to buy algae-based biofuels for their vehicles because their eco benefits.
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These interchangeability sentiments are echoed by May; “If natural gas prices triple or quadruple over time, the natural gas play, or Primus type deals won’t work anymore. But the good news is that their technology gives them the option to turn it into power, chemicals or another gas play as opposed to a fuel play which will make all the difference in the world.”
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Gregory Manuel, formerly of Amyris Biotechnologies and former Special Advisor for Alternative Energy to the US Secretary of State, expounds on this idea further. “There’s a growing recognition that the level of efficiency you need to achieve in your process to be competitive in commodity chemicals / fuels and it will take more time than originally anticipated. You can get there, and I think that some will, but in the meantime, companies are turning to smaller and higher value chemicals where positive gross margins are achievable.”
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Another way biofuels companies in the US are staying profitable is to market their technologies internationally. As Vonnie Estes, Managing Director at GranBio put it, “What is continuing to happen is that a lot of the tech is going to continue to be started and invented in the US and then deployed in other places.”
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“You don’t need the risk mitigation. If we give you an off-take with the biggest chemical companies in the world, why are we paying any interest? You don’t have any risk!”
The lesson learned by May that he’s applied to dozens of other bio deals is that when you de-risk a project (technological risk, feedstock risk, and off-take risk) for debt and equity, then combine the deal with an eclectic mix of financing, and then guarantee a minimum main play or production yield, you can make lenders comfortable and seal the deal.
Further, says May, those in the bio-based sector have to get out of the business of convincing people that it’s the kind of industry where they can achieve the rapid scale-up, hurdle rates, time horizons and liquidity events they’re used to. “It’s not solar, wind, or energy efficiency, and it doesn’t scale like software. It’s never going to and we have to stop apologizing for that.”
Rather than pinning his hopes on VCs, May’s approach is to find investors already in the same frame of mind rather than trying to coerce them into doing something they aren’t comfortable with. As such, his firm works with family offices, strategics, high net worth individuals, and even dabbles in crowdfunding. READ MORE and MORE and MORE