Moderator: Bill Schnoor, Goodwin Procter.
Panelists: Henrik Fisker, CEO Fisker Automotive; Jonathan Wolfson, CEO of Solazyme; Wes Bolsen, CMO of Coskata; Andrew Perlman, GreatPoint Energy.
Coskata has raised $40 million in funding. Fisker has raised nearly $200 million in equity. Solazyme and GreatPoint Energy have also raised capital. Solazyme does algae fuel.
Fisker: some ventures need government support because they require hundreds of millions of upfront capital. We applied for the federal loan so we could beat the foreign competition to market with our plug-in hybrid. Our first car seats four people plus luggage. Our second car, the $40k model, would have come to market 3 years later if we didn’t get the federal loan. We do have to pay it back. It was not a grant. We are trying to take a lead worldwide with this new technology. We need to be able to export these vehicles.
Bill. You got some press coverage when the federal loan was announced. Can you comment on that?
Fisker. There was some misinformation. American has historically helped industries and countries get on their feet — Marshall Plan in Europe is an example. The important thing for us was that we were using this loan (which we will pay back) to get ahead of the competition. Some people asked, why can’t they do it without federal help? We could have. But it would have taken extra years. Toyota owns the hybrid market in most people’s minds, because they were first to market. The important thing about this government loan is that it gives us a chance to compete with the conglomerates in the rest of the world. I know we couldn’t have gotten $500m from the private sector this fast.
Jonathan. Solazyme was founded in 2003. We use algae to make renewable oils. Our main focus is to produce large scale low cost low carbon fuels that drop into the existing infrastructure. Most cars run on petroleum based fuels. Our tech takes algae and actually grow them in the dark in stainless steel industrial fermentation equipment, by feeding them low cost biomass feedstocks. They can convert that incredibly rapidly into oil. It takes a few days. The good news is we can leverage the pre-existing infrastructure, using existing facilities. We can create diesel and aviation fuels. We have been demonstrating both in standard unmodified vehicles, doing thousands of miles, with unblended fuel. You can understand that the environmental footprint is an important piece of the puzzle. CA has hired some experts to measure the environmental footprint of these. So we’ve demonstrated this works, now how can we scale up with a cost-structure that works? The way this tied into DC was that when tax bills were being discussed in 2006/2007 that would give $1 per gallon tax credit to certain types of fuel (cellulose ethanol to cellulose alcohols). We had to engage against the auto industry to get the legislation changed to cover cellulose biofuels. We were a small 20 person company when we realized we had to be involved with DC. We recently announced two contracts with the Navy to test our fuels in aviation and shipboards. We have been delivering quantities on those contracts and will deliver more over the next 10 months. This shows how government can be involved. DOE of course will be very important in policy. But we had to look to DOD as well.
Bill. What about the funding aspect? Have you gone after grants and loans?
Jonathan. We’ve raised almost $80 million in equity. If you include unannounced partnerships and some level of govt funding (DOD contracts) then we have over $100 million in total funding. We have the state of California (which many think is almost bankrupt) a grant from them to develop cellulose fuels there.
Wes. Coskata was founded 3 years ago. We wanted to have a distruptive technology that displaces oil. We want to do it from non-food sources. Mr. Khosla is our Series A venture investor. Series B was General Motors. Series C was Blackstone, largest private equity fund. We have successfully scaled this technology. We have a semi-commercial facility outside of Pittsburgh. It works on woodchips, grass, municipal waste. We can put our technology everywhere. Why can’t we eliminate landfills? We did away with enzymes, pre-treatment. We use gassification on the front end. There are some people talking about building a pipeline from the midwest to the coasts, spending $7 billion. With our technology you don’t need a pipeline. We can deploy our technology anywhere. We haven’t taken a dollar from the federal government. We’ve never announced our funding levels. But it’s 2-3x what has been reported. We want to create jobs, reduce our dependency on foreign oil. We can reduce water use by half to create a gallon of gasoline. We have created a long-term viable fuel, that is cost competitive with gasoline. What we need from the federal government is consistent policy. Our investors don’t want less commitment from the government to getting off foreign oil dependency. After today I’ll be meeting with a number of people in the Senate energy committee to make sure the definition of biomass covers our product. Coskata will be rapidly licensing our technology.
Bill. Policy in Washington affects all of you. An article in the Times yesterday said lobbying costs in Washington have grown significantly in the last year. So how do you approach lobbying? Direct, by joining groups, by using PR? What has been most effective means for you to advance your cause on the hill.
Wes. We’ve had a good story. With General Motors launching their investment in us at the 2008 auto show, it helped us get the message out that we are ready to compete today with gasoline. It’s not 5 years away. This isn’t the technology you’ve thought about with enzymes. We’ve joined a few organizations, but I find that sometimes a message gets lost. So we’ve gone direct to our own Senators and Congressmen. They want to hear that you are considering their state. With a feedstock flexible message we can show that we can deploy our technology in Mississippi, California, etc.
Jonathan. Making sure you have a message that resonates is the most important thing you can do to affect change. We are in South San Francisco, founded in Palo Alto and Menlo Park. So we are very much a Silicon Valley company. Traditionally, SV companies did not come to Washington. We realized soon that the industry we are in requires coming to Washington much sooner. SV is really a meritocracy–best technology, marketing, strategy wins. We are comfortable in that world. The message in Washington should be that policy should be driven by the ends–and should be technology neutral, not favoring one technology over the other. This resonates with people. We say, when you create rules, regs, legislation, think about the end result you want. Set those ends, then let the market work out the details based on the ends. We have found a lot of like-minded companies that agree with this. Some trade organizations and small group visits can help. You can go in with examples of how some policies have not been ends-driven, some have favored some tech over others, making the playing field unlevel. Those are very effective.
Fisker. You have to have some private capital before going to DC. I needed to learn how the whole system works. It takes hours or days to explain. It depends on what type of company you are who you need to go and see. You need some face time with the politicians. They have so many things thrown at them every day. There is no simple answer–it’s many different avenues. Getting your story out, going to DC, etc.
Bill. As a history major, a book that I loved, that I recommend to my clients, is Lyndon Johnson: Master of the Senate. He got an incredible amount done. Our process is not end-result driven, its a constituent driven process. You have to understand that.
Bill asked a question about reducing our dependency on gasoline, what the prospects are, etc.
Fisker. We are going to see multiple energy sources, gasoline, biofuels, electric cars. With electric cars you’ll need an incredible new infrastructure. I believe that within the next 10 years we are going to see an emergence of these new technologies that will easily be over 20% of the market, because as people start adopting them, you’ll see the impact on your budget as well as on the environment. US is one of the cheapest places to fill up your car with fuel, but when you drive electric it will be like 3-4 times less expensive than fuel. And in Europe, where gas is so much more expensive, the incentive to drive electric is even greater.
Jonathan. You will see things like cleaner ethanol replacing gasoline; but you look at where Solazyme is focused, it’s on diesel and aviation fuel. We see the future being a combination of fuels. Our technology focuses on one area. It won’t be an either/or. There will be ethanol for quite a while. I’d like to see electric vehicles. What people don’t talk about is, where do the electrons come from for the electric vehicles.
Wes. Today the base level of all electricity is coming from coal. This is addressed in the Energy Bill. To reduce our dependence on oil we need a lot of things. Coskata doesn’t produce aviation or diesel. I’m talking about the government resolve, it needs to be consistent. Let’s use what we have today, start making a dent. As new technologies emerge, we should go there too.
Bill. Ethanol was adopted with a tremendous amount of government support, came from the Midwest, but the political backlash over using food sources for ethanol has occured. So there is debate about the sustainability of food and non-food ethanol. Do you have a person working with environmental groups in your company?
Wes. Corn-based ethanol is a good product, has been unfairly treated by some who call themselves scientists in that field. We need to support them–they started all this 25 years ago. There probably won’t be much investment from private or government in food-based ethanol, it’s going to non-food based biofuels. You can’t build a facility that needs biomass and cut down all the trees, because that will only work for one year. So sustainability has to be considered, it has to make sense.
Jonathan. We should be measuring the direct and indirect carbon affect of everything. We should rate biomasses. The fears are that the ratings will be politically driven. You don’t want to be so reactionary that you step on something before it has a chance to succeed.
US News reported asked question. You said that in the 50s, 60s, and 70s, you didn’t have Silicon Valley going to Washington. What changed?
Jonathan. The difference is that in energy, government policy does matter and some companies have won because of government support. The silicon industry didn’t require government to take off. We are in a very old industry that is very heavily regulated. And new regulations are being discussed every day that will affect our ability to go commercial.
Wes. “Washington DC has become your new Wall Street. That is the answer.” When lending isn’t happening, everyone looks to Washington.
Bill. My IT clients think there is one govt agency that matters, the Patent Office. My life science clients think there are three, including the FDA. But energy companies and others may find there are 50 government entities that matter.