Kleiner Perkins’ Organic Waste-to-Energy Play, Harvest Power, Bets $150M on Turning Compost Into Natural Gas

5/3/11Follow @xconomy

The team at Kleiner Perkins Caufield & Byers gets inundated with pitches from entrepreneurs who dream of winning support for their own big ideas. But once in a while, the big VC firm turns the tables by hatching the idea, crafting the business plan, and recruiting the founding management team to make it into a real business.

That’s how Harvest Power got off to its start in 2008, with the real rev-up of operations coming in the spring of 2009. The company, with headquarters in Waltham, MA, and operations in Vancouver, BC, and Seattle, has since raised about $150 million in equity, debt, and grants, built a team of 150 employees, and already started operating in the black. I heard this story last week from co-founder Jan Allen, one of the featured speakers at Xconomy’s alternative fuels event in Seattle on May 19. Our Boston readers will be able to hear more from CEO Paul Sellew at our XSITE 2011 conference at Babson College on June 16.

Harvest‘s big idea is all about putting garbage to good use. Every year, we in the U.S. produce 160 million tons of organic waste—including lawn clippings, banana peels, leftover pizza, restaurant grease, wood, and paper products. Some of that gets composted into soil today, but a huge amount ends up getting trucked to the nearest landfill. Instead of letting the organic waste sit there and rot, emitting waste natural gas, Harvest wants to capture that valuable gas. It is developing “dry fermentation” technology to capture natural gas quickly from the trash, and turn the solid residuals into high-quality compost for soil that can be sold on its own.

This approach will never be a single silver bullet to the world’s climate change problem, or the world’s need for new sources of fuel and electricity. But the company estimates that if its method is widely implemented, it could reduce U.S. greenhouse gas emissions by about 8 percent, and do something productive with the estimated 1,200 pounds of organic waste that the average individual produces every year in wealthy countries.

“The idea of taking the wettest, ugliest urban waste and making power out of it, and soil out of it, is beautiful,” Allen says.

From left to right: Harvest Power co-founder Jan Allen, business development associate Elizabeth Lowell, and outreach manager Meredith Sorensen

There’s an interesting story behind how Harvest got into its current position. The company was hatched by Amol Deshpande, a young partner who joined Kleiner Perkins in April 2008 to focus on cleantech.

Urged along by Deshpande, the original management team came together as a band of five, each playing his own distinct role. Paul Sellew, the CEO, was the entrepreneur with a track record building the No. 2 producer of compost-based lawn and garden products in North America. Nathan Gilliland, the president, has a finance background and a strong relationship with Kleiner, Allen says. Wayne Davis, the head of incentives and governmental affairs, is the legal expert. Paul McMenemy, the leader of business development, has Wall Street experience and contacts. And Allen is the engineering guy, known for helping lead one of the nation’s top compost facilities outside Seattle, back in the late ’80s, before compost was cool.

Allen resisted a couple of overtures to leave his most recent job at the architecture firm CH2M Hill to join Harvest’s founding team, but ultimately he was enticed by how his longtime friend and colleague Sellew described the concept. “We eliminate the export of waste, and eliminate the import of power. The whole zero waste philosophy is what we’re doing,” he says.

This isn’t the most high-tech concept you’ll ever see. Harvest Power’s strategy is to set up anaerobic digesters that are co-located at existing compost facilities. These digesters, which Allen likens to a “concrete cow stomach,” are set up to create the ideal mix of temperature, moisture, and percolation so that Mother Nature’s microbes can do their digesting magic more efficiently than they would in an open landfill. The digesters can throw off natural gas in 14 days, instead of about 14 years in the typical landfill environment, Allen says. The technology is simple, and requires few moving parts, he says. The resulting gas can be converted into natural gas fuel, or used to power big engines that generate electricity. The biomass that’s left over, after the gas is skimmed off, is turned into soil.

Harvest’s big break came in October 2009 when it purchased Fraser Richmond Soil and Fibre, a family-owned business that was founded in 1993. Fraser Richmond’s plant near Vancouver, BC, was, and is, one of the largest compost facilities in North America. The location couldn’t have been better for a business like this—it’s located near lots of progressive-minded consumers, there’s a public awareness campaign to support composting, the Canadian government provides grants to help build capital-intensive green facilities, and local utilities have agreed to pay “very generous” prices for electricity generated by this anaerobic digestion of organic waste, Allen says.

Harvest is already profitable from selling the soil that comes from the Vancouver compost facility, Allen says. But the company is putting itself in position to get even more interesting about a year from now. That’s when its “concrete cow stomach,” should be in position to churn out commercial-scale quantities of natural gas.

Vancouver will be a critical test market for Harvest, which could lay the groundwork for lots of other geographies, Allen says.

While Allen lives in Seattle—and says he personally didn’t want to move to Boston to be with Sellew and the other co-founders—there’s a business reason for Harvest to have a toehold here in the Northwest. Seattle, like Vancouver, is home to many green-conscious, early-adopter consumers. The Emerald City also charges some of the highest prices in the U.S. for trash removal, about $145 a ton, Allen says. And, like all major metro areas in the U.S., Seattle produces enormous piles of trash. The City of Seattle alone, not counting surrounding areas, produces 100,000 tons a year of landscape waste, and another 100,000 tons a year of commercial food waste that is the raw material of Harvest Power’s dreams.

There isn’t really much in the way of competition for this material—it’s mostly destined for the landfill. But there are barriers to entry. In every location you look at on the map, somebody today is getting paid to manage the waste stream exactly the way it works today. Consumers can be notoriously fickle or indifferent about composting. Local politicians may or may not beat the drum for the composting cause. While Harvest wouldn’t say so on my visit, I can imagine there is a complex legal and political thicket of crony contracts for trash hauling in most municipal areas.

“We are competing against the status quo,” Allen says.

Like any startup, it won’t be easy, but Harvest has some powerful allies on its side. Al Gore’s investment management firm, London-based Generation Investment Management, led a financing round that was worth more than $50 million in March. The Canadian government has lent a hand. Munich Venture Partners brings some trans-Atlantic perspective. And Houston, TX-based Waste Management (NYSE: WM), the largest trash hauler in North America, has gotten on board to invest.

How big this could get is anyone’s guess. It’s certainly not the answer to global warming, even if it’s replicated in every major center in every developed country. “We can’t replace big coal plants or hydropower facilities,” Allen says. “We can’t make gigawatts of power. We’re talking about megawatts.” And Harvest is a distinctly local business that will need to build clusters of infrastructure in densely populated areas to reduce transportation costs—nobody is going to haul organic waste across the country just to make some natural gas.

Still, there’s no doubt the company has a big idea, and appeals to constituencies who want to see reduced waste in our society and more renewable sources of energy. If the Vancouver plant proves the model feasible for other cities in the U.S., Harvest might even be the kind of story that convinces Kleiner Perkins to hatch companies more often. “This is a game changer,” Allen says.

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