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In addition to C&EN, Cleantech Chemistry’s household also receives Physics Today, the monthly magazine of the American Institute of Physics. The December issue contains an article – available free online – that is a must-read for any potential or current entrepreneur in the sciences.
The authors* interviewed 129 out of 192 founders and 16 other company officers at 91 startups in entrepreneurial clusters in 13 states. They examine where the firms’ technology came from and where their funding came from (and in what order). The interviews unearthed fascinating observations about working with venture capital and angel investors and how they differ regionally. The article also covers the different types of technology transfer programs at Universities and what it is like to work with them. It also discusses regional start-up cultures across the U.S.
As in this year’s C&EN special issue on chemistry entrepreneurs, the focus is on lessons learned. The Physics Today story includes a box titled “How to create an unsuccessful startup.”
In case you think that the situation of physics R&D and start-up culture is different than in chemistry – read this excerpt and see if it sounds familiar:
Because the large high-tech companies that once supported significant research have switched to development, the role of small startups as creators of innovative physics-based technology has become more important. Lita Nelsen, director of MIT’s Technology Licensing Office, describing the general decline of the once-great industrial labs, noted that “we’re dependent on the universities to be pushing the frontier of knowledge because the research labs in industry are largely shut down.” She added that more than half of the MIT patents for really innovative, early-stage technology are being licensed to startups. According to Nelsen, once a startup has proven an innovative technology, “the large companies will then buy either the product line or the company, and that is a conscious strategy for acquiring new technology now because it reduces their risk.” For a proven technology, large companies sometimes pay 100 or even 1000 times what they would have paid had they licensed the same technology from a university at an early stage.
The article goes on to discuss the difference between what it calls “technology push” versus “market pull” companies and why the former is the more risky. Go check it out!
*Orv Butler is a historian at the American Institute of Physics Center for History of Physics in College Park, Maryland. Joe Anderson is the associate director of the AIP history center and director of the AIP Niels Bohr Library and Archives in College Park.
The DOI for the Physics Today article
Risky business: A study of physics entrepreneurship
There is no other way to say it. This year has been a terrible one for cleantech firms hoping to access the public markets to fund commercialization. Investors seem to be allergic to the very idea of owning stock in a cleantech firm.
Cleantech Chemistry thinks that one might still squeak through before the end of the year – SolarCity just slashed its offering price and number of shares and may now raise $92 million in an upcoming IPO, down from an initial expectation of $151 million. New York Times Dealbook blog has the details. [Update: CC was correct - SolarCity is live and trading up]
SolarCity is not pushing some obscure technology – it buys industry standard solar panels, and leases them to residential homeowners. This business model has become a common way for homeowners to get around the high up-front costs involved in generating their own power.
Should SolarCity decide instead to withdraw its IPO, it will join a long list of cleantech firms that had second thoughts this year including BrightSource Energy (solar), Enerkem, Fulcrum Bioenergy, Coskata, Elevance, Genomatica (all biofuels and biochemicals), and Smith Electric Vehicles. (Hat tip to Cleantech Group for helping with the list).
The good news is that many of these firms are successfully raising money from private investors including venture capitalists, corporate partners, bankers, and the Federal Government (sometimes in combination as when a loan guarantee is offered from DOE or USDA).
Two firms did go public in 2012, though both raised less money than originally hoped. Ceres, a plant biotechnology company focusing on proprietary energy crops, and Enphase, a maker of a new type of solar inverter, clipped their wings a bit but made it out of the gate.
Moving to the New Year, the true effect of a lost year for IPOs may be mainly one of image. True believers will continue to invest in cleantech firms, but for the general investing public, it seems that the bloom is off the rose for pre-commercial companies in the sector. That means fewer stakeholders to help spread the risk of new technologies, and increasing competition to appeal to deep pocketed private investors such as chemical firms and oil and gas giants.
With plans for advanced biofuels facilities appearing – and disappearing – with some frequency, it can be difficult to evaluate the exciting claims made by companies that analysts kindly refer to as “pre-revenue.”
Here’s one such claim:
Fulcrum’s engineering and technology teams have recently made numerous enhancements to the design of Sierra [CC note: this is a first commercial facility] and to its proprietary MSW [municipal solid waste] to ethanol process. The Company expects these improvements will dramatically reduce its cost to produce renewable fuel to less than $0.75 per gallon at Sierra, down from approximately $1.25 per gallon as previously disclosed. The cost of production at future Fulcrum plants is now expected to be less than $0.50 per gallon, down from $0.70 per gallon as previously disclosed.
Now, 75-cent ethanol is very cheap. Corn ethanol prices are usually about $2 per gal and thus it costs somewhat less than that to make (or not – many facilities are idle as corn costs are high). Chemtex – an engineering firm based in Italy – is now turning on its cellulosic plant in Cresentino. It plans to make ethanol for $1.50 per gal from 10 cent per lb cellulosic sugar.
Fulcrum plans to make ethanol at its plant near Reno, Nevada from municipal solid waste. Its feed costs are known – it will get free trash from waste handling partners including Waste Management. C&EN recently reported on Waste Management’s involvement in this space. The process is: sort waste, shred waste, gasify it, catalyze it to make ethanol, and separate/purify the ethanol. If the feedstock cost is the same as before, we can speculate on which part(s) of the process has been optimized to take 50 cents off the original cost estimate.
The new cost estimates may also just be something the firm has put out to distract from other thoughts/questions about the process and business model. For one, Fulcrum says it has withdrawn its IPO filing. It will proceed with its first plant using project financing (including a $105 million USDA loan guarantee). The other questions are – will the plant actually be built, and will it produce ethanol at all? These are the kinds of questions facing all the players in the advanced biofuels industry.
And as for the promise of 75-cent or cheaper ethanol – industry watcher Erik Hoover of Cleantechdata responds “More cautious language would help everyone.”
Will the U.S. government’s biofuels mandate increase the cost of your favorite “dollar menu” item?
A trade group of chain restaurants – which includes fast service joints – called the National Council of Chain Restaurants, has put out a report saying that the EPA’s Renewable Fuels Standard will increase restaurant food costs. According to NCCR, the RFS will cause the cost of corn to rise by 27% (according to two studies) or perhaps by only 4% (according to one study).
In addition to mandating ethanol made from corn, the RFS is the mandate driving the new industry of cellulosic ethanol. Biofuels producers of all kinds love mandates. Love is not a strong enough word, actually. I’m not sure what word DuPont would use. It just broke ground on a 30 million gal/year cellulosic ethanol facility in Nevada, Iowa.
But the fast food group argues that the RFS means higher corn costs and higher costs for everything from wheat and soybeans to beef, poultry and eggs. The average fast food restaurant spent just over $180,000 in 2011 on food commodities. Once the RFS is fully phased in, the cost of that food would go up, they claim, by 10% in the worst scenario and 1.6% in the best.
Recently, when the EPA denied requests by governors and members of congress (many representing the cattle and poultry industry concerned about rising costs of feed), it said its own estimates showed corn prices were affected only slightly by demand for ethanol – by about 1%.
The NCCR report contains the following statement:
“Increased demand for corn for use in ethanol will cause corn prices to increase, in the absence of adjustments to the supply of corn.”
But according to the USDA, both corn acreage, and importantly, yield per acre, have soared in recent years due to the additional demand from ethanol:
Corn production has risen over time, as higher yields followed improvements in technology (seed varieties, fertilizers, pesticides, and machinery) and in production practices (reduced tillage, irrigation, crop rotations, and pest management systems).
Strong demand for ethanol production has resulted in higher corn prices and has provided incentives to increase corn acreage. In many cases, farmers have increased corn acreage by adjusting crop rotations between corn and soybeans, which has caused soybean plantings to decrease. Other sources of land for increased corn plantings include cropland used as pasture, reduced fallow, acreage returning to production from expiring Conservation Reserve Program contracts, and shifts from other crops, such as cotton.
Companies that are building facilities to produce advanced biofuels (not derived from food sources) are probably more dependent on the RFS than their corn-consuming counterparts. With corn ethanol selling for $2 a gallon, fuel blenders will likely seek it out even without a mandate. While it would be more comfortable to ignore this food fight, the future of the RFS could make or break the future of advanced biofuels.
[Not surprisingly, the Renewable Fuels Association has issued a response to the NCCR's report]
Switchgrass, miscanthus, hybrid poplar – these are just the first three plants I think of when I hear the term “energy crop.” But I heard of a new one a few weeks ago when I attended a conference (story fortcoming) about commercializing biobased chemicals and fuels. Let me introduce you to a very big “weed” called Arundo donax.
While most energy crops produce a few tons of dry biomass per acre, Arundo – a tall bamboo-like reed – can produce several. Like switchgrass, it is a perennial. Like Kudzu, however, it is self-propagating and possibly horribly invasive.
It looks like the huge plant (it’s a weed when it grows where it isn’t wanted, like in California), may become a lot more well-known in biofuels circles. Chemtex will use it, along with wheat straw, in its first commercial facility in Crescentino, Italy. This plant is already humming, and commercial ethanol production is expected to begin early next year.
Chemtex plans to construct another ethanol plant in eastern North Carolina. Through a USDA program intended to promote rural development through the cultivation of energy crops, the company was offered a $99 million loan guarantee to plant “high yielding energy grasses, including miscanthus and switchgrass.” According to a fascinating look at Arundo cultivation – and eradication – by the Associated Press, it looks like the giant weed may also be part of the mix.
Meanwhile, a much sweeter crop, a high-sugar variety of sorghum, may be edging its way into Brazil’s famous sugar-growing regions. Plant biotech firm Ceres, and agribusiness firm Syngenta plant to run test plots of hybrid sweet sorghum destined for ethanol production. The press release says that Brazil’s ethanol industry has created a shortage of sugar cane, and the country views sorghum as a strategic crop.
While Arundo would be harvested just for its biomass, sorghum is usually grown for its seed which is used in animal feed.
I wanted to point your attention to Jeff Johnson’s story today about why EPA will not wave biofuel blending requirements (known as the Renewable Fuels Standard or RFS). Nine governors and many members of Congress, prodded (no pun intended) by livestock producers, had asked EPA to waive the standard saying that ethanol demand was driving up the cost of corn.
What I found interesting is that EPA estimates that waiving the mandate would only reduce corn prices by approximately 1%. This year’s U.S. corn harvest was impacted by drought, and yields plummeted to a 17-year low, Johnson reports.
While the RFS was initially written into law in 2007 to enhance U.S. energy security, it is considered the main policy vehicle driving demand for advanced biofuels. These are biofuels made not from food grain like corn, but from other feedstocks like corn stover, sustainably harvested wood or waste products. These fuels, when commercialized, are expected to help lower the U.S. contribution to CO2 emissions.
The members of BIO, a trade group of advanced biofuels firms and biobased chemical makers, reacted with joy to the announcement.
“EPA has made the right decision and we thank them for making a careful and fully considered analysis,” said Brent Erickson, executive vice president of BIO’s Industrial & Environmental Section. “Earlier studies by researchers at Purdue University, Iowa State University and the University of Missouri’s Food and Agricultural Policy Research Institute showed clearly that a waiver of the RFS would not undo the economic harm caused by the drought.
“However, a waiver of the RFS could have undercut ongoing investments in advanced biofuels. Renewable fuels are a significant contributor to our nation’s economy and energy security, creating jobs and directly reducing reliance on imported oil. This decision allows BIO member companies to continue to deliver innovative technologies to the market to expand our domestic production of biofuels, including fuels from agricultural residues, municipal solid waste, algae and purpose grown energy crops.”
Connecting those themes – the RFS, the drought, and CO2 emissions, NOAA recently reported that man-made climate change was an important contributor to the extent and duration of the 2011 drought in Texas.
Starting soon, oil-producing algae will be replicating at B-horror-movie quantities. Imagine a lab coat-wearing scientist running into the street shouting “300,000 metric tons!” while scores of screaming people run by, pursued by a giant wave of green slime.
But be not worried, the algae in question will be safely confined to fermentation tanks thanks their overlords at Solazyme. And many of those tanks will be in Brazil (so the people would be screaming in Portuguese, I guess.)
Earlier this week, Solazyme says that it has agreed with its sugar-producing partner Bunge to increase the production capacity for algal oils from an original 100,000 metric ton amount to 300,000 metric tons. It seems from the press release that Bunge will have a hand in marketing the tailored oils to the edible oil market in Brazil.
If you happen to live in the U.S. and have a craving for oil derived from algae, you’ll be pleased to learn that another large blob will be coming to Clinton, Iowa, starting in early 2014. Solazyme and its little green workers plan to ooze into the idle Archer Daniels Midland plant formerly occupied by Metabolix’s bioplastics operation. The plant will start out making 20,000 metric tons, but aims to grow to 100,000 metric tons.
Cleantech Chemistry dives into the #foodchem carnival this week!
This is a good time to get your Thanksgiving menu planning started. This time of year I use a lot of spices. Have you ever noticed how expensive they are? I’ve paid $14 for two vanilla pods. The problem with vanilla is that it comes from the seed pod of a kind of orchid. Having tried to grow orchids, well, let’s just say I can imagine this is not an easy crop. Also, vanilla is commonly grown in Madagascar. Not exactly a locavore treat.
I’ve had better luck with growing crocuses, but I’ve not grown my own saffron. Maybe I should, because saffron, which comes from the flower of the saffron crocus, sells for about $2,000 per kg.
Microbiologists and chemists are ready to come to the rescue of cooks (and food makers) who love spices but don’t want to break the bank. One start-up, based in Switzerland, is Evolva. Evolva plans to use biotechnology to make high value ingredients for health, wellness, and nutrition. Two of its first target products are vanilla and saffron.
So far, it’s been a rather quiet company, but its CEO, Neil Goldsmith, came over to Philadelphia this week to talk about the firm to attendees of the first gathering of SCD-iBIO. This group was formed to promote a strong value chain for biobased products in order to commercialize the output of industrial biotechnology.
In the context of the meeting, Goldsmith said the firm’s background in pharmaceuticals (the company started with ideas of supplying the drug market) means it is well positioned to deal in the regulated food industry. As a small company, Evolva has purposely targeted high-value, non-commodity products. Also a the meeting were Solazyme and Amyris. Both are larger and public biobased companies that are targeting the pricey wellness market (personal care and fragrances). Both firms had initially said they would target biofuels.
Evolva says flavor molecules like those in vanilla and saffron can be made much more cheaply by fermentation. Most vanilla-flavored foods are made with synthetic vanilla, a product called vanillin. But natural vanilla is a complex mixture of flavor molecules and Evolva says it can make more than just vanillin. In addition, using sugar as a feedstock helps in an industry looking to avoid synthetic ingredients derived from petroleum.
The stevia plant also contains a number of molecules that produce its characteristic sweetness. Stevia sweeteners, which are derived from the plant, are now a $300 million per year market. The sweeteners are commonly used in beverages, but are pricier than sugar, HFCS, and synthetic sweeteners.
Goldsmith pointed out that the best stevia molecules for use in sweetening beverages (without the characteristic bitter aftertaste of some stevia products) occur in very small amounts in the natural source (the plant). So Evolva plans to make those less-common molecules via fermentation. The implication is that this version of the biobased sweetener could also be made more cheaply than the plant-based version.
About making flavors and fragrances with microbes: Sweet Smell of Microbes