Algae Biofuels Skeptics Emphasize Need for Realistic Outlook and Business Discipline

10/14/09Follow @bvbigelow

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give us gasoline at $8 a gallon, we’re going to be in real trouble. The passenger aircraft industry is going to lose $11 billion this year—and they have access to [aviation] gas at $2 a gallon.”

During a panel discussion about financing, venture capital, and investment opportunities in biofuels, Arama Kukutai of San Diego-based Finistere Ventures referred to “bridging the credibility barrier” and described algae as an “unproven crop.” He told the audience, “We’re less interested in science projects than we are in commercializable technologies.” (Yet Kukutai also acknowledged, “We will continue to see venture interest in this space. We’re certainly interested.”)

Another speaker participating in the investment roundtable discussion, Mark Warner of the Harris Group, noted that unlike algae-based biofuels, the industry already had substantial experience in commercializing corn-based ethanol technologies. When the time came to finance ethanol plant construction, Warner said, “There was real data on how much corn you need, how much natural gas. It wasn’t based on projections.” He added that banks also were familiar with the technologies needed to make corn-based ethanol technologies and therefore were willing to provide the necessary financing to build production plants. And with the ethanol plants, Warner said, “There was somebody with a credible balance sheet who was willing to say, ‘If we build it and something isn’t right, we will make it right.’”

The absence of such business gravitas may be what concerns skeptics like Valero’s Walter—along with the fact that algae biofuels are simply at a very early stage of technology development. So I thought it would be useful to pass along a number of Walter’s “conditions for investment” in biofuels startups. He says you’ll see the same criteria on any Department of Energy grant application:

—A full identification and realistic accounting of all known resources necessary for [an algae biofuels] project to become fully operational.

—Demonstrate clear rights to the patents and other intellectual property necessary to implement the business plan.

—A detailed business plan, based on a working financial model with adequate research into algae-biofuels markets and competition.

—Fulfillment of all permitting requirements.

Such basic criteria may simply represent a level of business discipline that many entrepreneurs pursuing green dreams are not yet ready to embrace. One thing I noticed during the session on investment opportunities was that the session taking place next door had attracted a far larger crowd. It was at least twice as big, with people standing in the back of the room and along the side walls. The subject was “General Topics in Science and Technology,” and it prompted me to think a lot of aspiring algae entrepreneurs are just trying to figure out this new technology.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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  • Jake

    Interesting article, Bruce. This could be a pretty stringent test for biotech where there’s little or no hope of making a high value product. I read one estimate that there are about 60 companies pursuing algal biofuel, but I wonder if there will be a big shake-out as these guys use up their early funding.

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  • anonymous

    We have spent over $2.2 billion dollars on algae research for the last 35 years and nothing to show for it. The problem is as long as the algae researchers can say we are 3-5 years away, its too expensive and they need more research they get the grant money. The question you need to be asking is “Does the US really want to get off of foreign oil or do we want to continue to fund the algae researchers at the universities”.