26 February 2010 13:36 [Source: ICB]
Start-up sustainable chemistry companies lay out their strategies to attract a growing number of financiers seeking to invest in the field
Macro trends such as oil price volatility, the need to reduce greenhouse gas emissions and energy consumption, and the trend towards using environmentally friendly and renewable-based materials, all point to the attractiveness of investing in green chemistry companies.
But at the end of the day, many companies find that it's not easy to get money rolling in, if they're just playing to be green.
"Investors, especially venture capital firms, first have to get comfortable with the complexity of the chemical industry, which, in terms of business returns, has a different model compared to other clean technologies and health care-related biotechnology markets," says Jean-Francois Huc, president of New Jersey-based DNP Green Technology.
"The macroeconomic trends strongly favor green chemistry, but we don't yet have a track record of successes that can help investors to develop the metrics and strategies for investing in this space," he adds.
Despite that challenge and given the overall rough investment environment last year, DNP Green was able to attract new investors, including France-based Soffinova Partners, Mitsui & Co. Venture Partners and Cliffton Group, both US, and Korea's Samsung Ventures Investment Corp. for their $12m (€8.8m) round of financing completed in October 2009.
The late-stage biomaterials firm hopes to be one of the first successful green chemistry stories. DNP Green commissioned in January the world's first bio-based succinic acid plant in Pomacle, France, operated by Bioamber, its joint venture with France-based agricultural research consortium Agro-industrie Recherches et Developpements.
The 2,000 tonne/year bio-succinic acid plant, built at a cost of $27m, uses wheat-derived glucose for feedstock. DNP Green also acquired last month a controlling stake in US-based Sinoven Biopolymers, which will manufacture modified biodegradable polybutylene succinate plastic using DNP Green's bio-succinic acid.
"In this environment, money is a very difficult situation"
Atul Thakrar, president and CEO, Segetis
"Quite frankly, in this environment, money is a very difficult situation, but we managed to raised a good round, and we are very fortunate to persuade DSM to become our strategic investor," says Segetis's new president and CEO, Atul Thakrar.
He agrees with DNP Green's assessment of the difficulties in trying to convey a clearer definition of green chemistry technologies to investors.
Unlike other companies that offer alternatives to already-established petroleum-based chemicals, Segetis is also challenged on how to convey the science and performance of its novel chemical, levulinic ketals (L-ketals) - not only to investors but to potential customers.
"Investors are always looking for a strong technology with a wide breadth of market applications, strong intellectual property, proven performance, and a company with solid business models," says Thakrar.
"Having a strong and experienced management team provides comfort in executing the plan. The fundamentals haven't changed, but you do have to take some time to help people understand the space that you're in."
Constantly engaging in the marketplace, developing strong partnerships with potential customers, and having a fast iterative development program are also keys to success, he adds.
Segetis's L-ketals are built from levulinic acid, which is derived from cellulosic biomass and biobased hydroxyl compounds. Potential applications for L-ketals include plasticizers, polyols and solvents.
In January 2009, the company started a new 250,000 lb/year (113 tonne/year) L-ketals facility in Minneapolis, Minnesota. Segetis is now extensively involved in L-ketals market development and hopes to see sales start in 2011, says Thakrar. Segetis plans to go through a toll manufacturing setup as part of its interim strategy before launching into a full-scale commercial plant.
Having a solid tolling or partnering option for manufacturing in place is attractive to investors, notes DSM Venturing's senior investment manager, Erik Rutten.
Green chemistry companies, notes Rutten, are of general interest to DSM because of the company's strategic focus on innovations in the areas of climate change and energy.
Aside from Segetis, the company also recently invested in US bioplastic technology company Novomer and Sweden-based biogas processing company Bioprocess Control.
Rutten says this is a good time for investors to step into the green chemistry arena: valuations are low, and demand for green-based chemicals is expected to strongly increase.
"Driven by climate change and alternative energy initiatives, this is a field with a lot of growth and innovation potential, which attracts lots of investors and entrepreneurs, and creates room for new ways of generating value," says Rutten.
He notes that the amount of start-ups in the green chemistry space is definitely booming, although several had to adjust their plans and some even disappeared last year because of the difficult financing environment.
Venture capital firms are also more cautious with their dollars these days, although their interest in the green chemistry field is still on the rise, says Erik Hoover, industry analyst at New York-based custom research and information brokerage Cleantechdata.
"The hunt is on for value that can be turned into profits. To sway investors, companies have to craft their business plan as an opportunity that realistically can make money now, and make profits in the near future," he adds.
Outside fine chemicals and pharmaceuticals, Hoover notes the historic rarity of start-up models within the chemistry field. The chemical industry is generally not a place of explosive profit potential, he muses.
"Making money in chemicals is hard, and taking an uncharted course makes it harder. It takes a lot of time, money and expertise to make the journey from a laboratory-scale innovation to worldscale commercial operation," says Hoover.
LOW-COST GREEN CHEMICALS
The strategy is for companies to focus on offering lower-cost and better-performance products, while making the green benefit a bonus.
"Far and away, the most important thing a sustainable chemical company must do is offer a lower-cost alternative," says Christophe Schilling, CEO of California-based Genomatica. "In the marketplace and thus with most investors, any environmental benefits come second. If you're asking the industry to pay a premium for a sustainable product, it is dramatically more difficult to be successful.e_SDRq
Genomatica's business model focuses on partnering and licensing its technology as opposed to building and operating its own manufacturing facilities.
The company's portfolio focuses on producing cost-economic renewable-based chemicals such as 1,4 butanediol (BDO) and methyl ethyl ketone (MEK) using the biotechnology route.
Schilling says Genomatica's direct production process can replace existing BDO production one-for-one without requiring additional processing. "In the history of the chemical industry, there are just a handful of new polymers/chemicals that can take the market by storm and see rapid widespread adoption, so we believe replacing existing products at a lower cost is more profitable and is essential for rapid adoption," he adds.
ZeaChem and OPX Biotechnologies, both Colorado, US-based, are also focused on producing lower-cost, performance-comparable equivalents of chemicals that are already on the market. OPXBIO is using its biotechnology platform called EDGE (Efficiency Directed Genome Engineering) that enables rapid determination and engineering of microbes to produce multiple high-yield but lower-cost products. OPXBIO is currently working to produce bio-acrylic acid as its first product and is also working on biodiesel as a follow-on product.
CEO Charles Eggert says the company is now bringing the bio-acrylic project through early pilot-stage development and expects to build a demonstration facility in 2011. By 2013, Eggert hopes to open the world's first commercial bio-acrylic plant, with a partner.
"Companies investing in OPXBIO are not just getting one feedstock, one organism, one end-product and one market. They are investing in a platform capability that we can deploy against multiple feedstocks and multiple products," says Eggert.
The challenge is how to convey to investors the power and differentiation of the company's EDGE technology against other comparable technologies. "We understood the potential of our technology, and we will ultimately demonstrate it, but in the early days, it was a challenge to get that information across to potential investors," he says.
ZeaChem's plan is to simply focus on being competitive with petroleum in the long term at $40-50/bbl.
ZeaChem wants to produce fermentation-based acetic acid using its acetogen bacteria, which breaks down biomass without the use of enzymes. In February, the company was able to demonstrate successful fermentation of greater than 50 grams/liter of acetic acid in less than 100 hours.
Unlike yeast, acetogens don't produce carbon dioxide (CO2) during fermentation, which offers efficiency and yield advantage, says ZeaChem CEO Jim Imbler. He notes that investors these days are turning more towards companies that can show progress fast, meet their deadlines, and prove that their technologies can actually go into the market.
"Demonstrate that your technology works"
K'Lynne Johnson, CEO, Elevance
In December, ZeaChem won a $25m grant from the US Department of Energy (DoE), which, Imbler says, will be used to support construction of the company's first cellulosic biorefinery, with capacity of 250,000 gals/year (66,000 liters/year). The facility is under construction in Colorado and components will be moved to the biorefinery site in Boardman, Oregon, US, later this year. The plant will produce both ethyl acetate (etac) and ethanol for sale using the bio-acetic acid intermediate.
GRANTS AND PARTNERSHIPS
Illinois, US-based Elevance Renewable Sciences is also one of the recipients of the DoE's $600m in biorefinery grants, and was able to get $2.5m to partly fund the company's planned 2.6m gal/year demo-scale integrated biorefinery being built in Newton, Iowa.
The biorefinery will convert renewable raw materials such as soybean oil, corn oil, animal fats, algae oil and other emerging oils, into olefins, fuels and specialty chemicals.
Elevance CEO K'Lynne Johnson notes the importance of government funding to accelerate the development of green chemistry technology and getting products to market at a faster pace. "There's probably not a huge fundamental difference in getting government grants as compared to attracting investors," says Johnson. "You have to demonstrate that your technology works, that it will create compelling and affordable products, and that you have a clear pathway to access that."
A company does have to pay attention to the small nuances around government grants, she adds. "Applying for a grant is time and resource-intensive. However, the more you understand the purpose of a funding program, the better you can evaluate how it can strongly fit your technology and your company's goals."
Governments are now recognizing the importance of green chemistry's potential in sequestering CO2 and minimizing environmental impact compared to its petrochemical counterparts, notes Damien Perriman, vice president of business development at California, US-based synthetic biology company Verdezyne.
"The government could play a role in helping new green chemistry processes compete by recognizing the value of sequestered carbon," says Perriman.
Whether applying for a government grant or attracting investors, validating laboratory data and demonstrating a project is the most critical goal for any green chemistry company. Strategic partnerships also go a long way toward establishing credibility, he adds.
"The opportunity for industrial biotechnology is highly disruptive and the investment required by all participants in the commercial pathway is significant," says Perriman. "Hence, the companies most likely to receive favorable consideration by investors are enhancing their likelihood of success with data or partnerships," he adds.
In early February, Verdezyne announced it had developed a new fermentation process for producing bio-adipic acid that has at least a 20% cost of manufacturing advantage over its petroleum-based counterpart.
ADVICE FROM THE TOP
CEOs of green chemistry companies dole out advice on how to attract investors.
"Partnerships can help ensure the cost competitiveness and performance of your products, as well as help get a business plan that is affordable and quick to access markets."
K'Lynne Johnson, CEO, Elevance
"You can always sell real value. Take a closer look at the market and identify what are the values that your technology platform can offer to the marketplace."
Charles Eggert, CEO, OPX Biotechnologies
"Sustainable chemical companies must take into account the structure of their industry as it is now."
Christophe Schilling, CEO, Genomatica
"Dare to be different, but first make sure you got the right organization and right talent pool to be able to execute."
Atul Thakrar, CEO, Segetis
"It is important to have a clear vision and a business plan that articulates what it is that you're trying to achieve. Then, find investors that share your vision."
Jean-Francois Huc, president, DNP Green Technology
"First, figure out how you're going to make money. Second, be very suspicious of cool technologies. If it sounds too good to be true, then it probably is. Third, watch every dollar you spend."
Jim Imbler, CEO, ZeaChem
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