Panel: Companies’ Big Bets Suggest Cleantech Is Here to Stay
For a cleantech startup, it can make sense to fuel growth with venture capital dollars—but only up to a certain point, said Hans Liao.
That was one lesson Liao learned after he left Minnesota-based Cargill, the largest private company in the U.S., and in 2009 began working at Boulder, CO-based OPX Biotechnologies, a developer of bio-based acrylic acids and other compounds.
He was one member of a panel discussion titled “Translating cleantech from bench to business and back” that was held on Tuesday in Madison, WI. The topics discussed included how early-stage companies can work with larger, more established businesses; how cleantech investment in the U.S. compares to other countries; and what effect the rise of electric vehicles might have on efforts to develop and commercialize technologies that use renewable energy sources.
After Liao joined OPX Bio, the startup continued to raise money from venture capital funds, including a $36.5 million funding round in 2011. But eventually, OPX arrived at a crossroads. One option was seeking the funding to build its own manufacturing plant, Liao said, which was likely to cost hundreds of millions of dollars. It would have also required financial backers to wait years, if not decades, before seeing a return on their investment, he added.
That route didn’t have a lot of appeal to the VC firms that had funded OPX up to that point, Liao said.
“We were at a point when the venture people just said, ‘We can’t put in any more money, and then have it locked up for 20 years in order to build [a plant],’” he said.
So the VC groups began looking for larger organizations—ones with “infrastructure or dollars or market access,” Liao said—and encouraging them to take a closer look at OPX.
In 2015, the startup was acquired by none other than Cargill, paving the way for Liao to return to his old employer. (He is currently a senior principal scientist there.) Cargill’s core business is producing and distributing food ingredients and agricultural commodities, such as starches, palm oil, and livestock feed.
“In the good old days, you could get money from banks,” Liao said. But over the years, things changed, he said, in part as a result of the financial crisis that hit the U.S. in 2008. “That’s why companies like Cargill exist. We look for strategic partnerships.”
Another cleantech startup acquired by a much larger business is Madison, WI-based Virent. The company develops technology aimed at producing cleaner and more sustainable liquid transportation fuels. It’s also working on plant-derived materials that could be used to make everything from plastic bottles to carpeting. Last September, the San Antonio-based petroleum refiner Tesoro (NYSE: TSO) purchased Virent for an undisclosed sum.
Edgar Steenwinkel, vice president of research and development at Virent, said that despite being part of an oil giant, his company’s work on a bio-based paraxylene—a form of the chemical that can be used in packaging containers, fabrics, and other items—isn’t likely to be abandoned entirely.
“Our technology is agnostic,” he said. “We can make both [fuels and chemicals]. If you look at how the dynamics are in the industry, there are advantages of developing fuels because there’s … infrastructure around it. [But] there are also advantages with chemicals because people are motivated to buy those [end products].”
Tesoro’s acquisition of Virent could be viewed as a signal that the petroleum refiner expects biofuels will be a significant part of the energy landscape in the future.
Tim Donohue, a bacteriology professor at the University of Wisconsin-Madison, is likewise bullish on the future of alternative fuels and renewable energy sources. While Tesla (NASDAQ: TSLA) and other automakers are currently making huge bets on electric cars, it’s important to keep in mind that the automotive industry only accounts for 10 percent of energy demand in the U.S., Donohue said. Meanwhile, aviation, diesel-powered trucks, and naval shipping make up another 20 percent, he said.
“I will be pushing daisies before anyone gets on a plane with anything but jet fuel in it,” said Donohue, who joined the UW-Madison faculty in 1986, and also directs the Great Lakes Bioenergy Research Center, which was launched in 2007 with a five-year, $125 million federal funding grant. “The idea that you’re going to run naval shipping or long-haul diesel or aviation on electrified or [gas-electric] hybrid type of engines is really George Jetson—way out in the future.”