Join Date: Mar 2001
Venture Capitalists Want to Put Some Algae in Your Tank
Venture Capitalists Want to Put Some Algae in Your Tank
NILAND, Calif. — The idea of replacing crude oil with algae may seem like a harebrained way to clean up the planet and bolster national security.
But Lissa Morgenthaler-Jones and her husband, David Jones, are betting their careers and personal fortunes that they can grow masses of the slimy organism and use its natural photosynthesis process to produce a plentiful supply of biofuel.
A few companies are in a race to be first to convert algae to fuel on a commercial scale, and it will require not a small amount of money, luck and biotech tweaking.
“You have a vintage here that you are not sure is going to mature into anything good, and you are putting money into it on the off chance that it might,” Ms. Morgenthaler-Jones, acknowledged during a drive the other day to an algae-filled catfish farm in this secluded desert town.
Like thousands of other pioneer venture capitalists over the last two years or so, these two San Francisco Bay area investors have trolled through the dizzying, complicated world of renewable fuels — from wave power, to hydrogen fuel cells, to lithium batteries, to cow manure for making methane. And just like their predecessors of the dot-com boom a decade ago, they have come up with their very own gamble, started their own company, called LiveFuels Inc., and are now negotiating with other potential venture capital partners.
What is different, though, about Ms. Morgenthaler-Jones and this latest entrepreneurial wave is that the search is for something that both produces profits and offers something good for the environment. One goal, for instance, is to find an energy-efficient way to convert algae into fuel, which is why she was visiting a catfish farm here that was for sale. Farmed catfish could provide a useful source of carbon dioxide for the algae, as well as a critical revenue flow to keep research going. The timing may be just right. With oil prices at high levels and fears of global warming growing, the old world of conventional hydrocarbon energy has been joined by an alluring new array of alternative-energy gadgetry, technical wizardry and potential riches. But there are still many more blind alleys than successes, and sleepless nights go with the territory.
There are hundreds, if not thousands, of start-ups in the alternative-energy business, some so tiny they are run out of home basements. But the bigger ones are beginning to take off. A handful are now building at least three demonstration plants to convert wood chips and grasses into ethanol in the United States and Canada.
Meanwhile, venture capital firms and hedge funds are financing the construction of new plants to produce biodiesel fuel out of vegetable oil, larger and more durable wind turbines and new materials to make cheaper solar cells.
While still on the fringes of the energy mix, United States venture capital flowing into clean energy leapfrogged to more than $2.4 billion in 2006, well more than double that invested in 2005, and more than triple from 2004, according to Clean Edge, a research and consulting firm. The numbers are still small compared with the research budgets of the big oil companies, but the ascent of venture capital in renewable energy has reminded some Silicon Valley venture capitalists of the early flow of money into the Internet in the mid-1990s.
“Venture capital in energy has reached a critical mass,” said Daniel Yergin, the energy historian and consultant. “Enough is happening so that significant things will come out of this. With the same intent to do in energy what they did in biotech, they bring not only money and discipline, but they are results-oriented.”
One Seattle-based start-up, Prometheus Energy, attracted enough equity capital in the last three years to open a plant in Orange County, Calif., in January that for the first time produces liquid natural gas commercially out of landfill methane gas that would otherwise waft greenhouse gases into the atmosphere. Another venture capital favorite, Jadoo Power of Folsom, Calif., has already pioneered portable hydrogen fuel-cell technology for remote satellite phones, critical emergency radio communications and police surveillance, and it is now working on cells for home use to free customers entirely of their utility bills.
“I can honestly say that for the first time in my life we are seeing the venture capital community put sizable amounts of money into energy,” Energy Secretary Samuel W. Bodman said in a speech in Houston last month. “This is real money. They are betting, if you will, that clean, safe, affordable energy represents the new innovation frontier.”
To this group add LiveFuels, with its improbable company jingle that goes “from pond to pump.”
“If the U.S. put 15 million acres of desert into algae production, we could produce enough volume of liquid fuels to get us off the Middle East oil addiction and give Iowa back to the songbirds,” said B. Gregory Mitchell, an algae research biologist at the University of California, San Diego, who is a friend of Ms. Morgenthaler-Jones and Mr. Jones.
The company projects that in three years it can produce some biofuel, which theoretically could eventually be produced in quantities of as much as 20,000 gallons of fuel a year per acre of algae.
The road to algae has been far from straight for Mr. Jones, and Ms. Morgenthaler-Jones, who comes from a family of venture capitalists and started her own clean energy venture capital fund in 2004. It culminated more than two years of reading and research, tracking down and talking to scientists and attending energy and venture capital gatherings, where Ms. Morgenthaler-Jones has a habit of munching on chocolate-covered strawberries while doodling molecular diagrams of fatty acids during the duller lectures
They looked at investing in wave energy but decided that corrosion from salt water and unpredictable weather made it unreliable. They looked at investing in hydrogen fuel cells but decided that they were too expensive for generating stationary power and too fragile to install in cars.
They looked at wind energy but decided it could not beat the price of power from coal anytime soon, especially with Congress’s past habit of allowing production tax credits to lapse whenever the price of oil dropped and the sense of urgency faded. They looked at solar but concluded that it would be tough to compete with venture capitalists experienced in semiconductors already pouring into the field.
They came close to investing in a cellulosic ethanol company that had designed machinery to turn sugar cane or wood chips into a synthetic gas. But after talking to experts, they concluded that the scientist behind the firm was promising more than he could deliver.
Ms. Morgenthaler-Jones spent months visiting dairy farms around the country to see if there might be a good business opportunity in converting cow manure into methanol.
“Oh, boy! Do you smell it?” she said. “I was tramping around in manure and admiring five-acre manure ponds.” But what bothered her most were the regulatory and cost hurdles to making the business work.
“For most of these alternative fuels, you need a perfect confluence of technology, regulation and market conditions,” she said.
During her research, Ms. Morgenthaler-Jones found a decade-old government study on algae that lost funding during the Clinton administration. It was a moment that led her to more conversations with algae specialists. The slime, she concluded, showed real potential.
And since Ms. Morgenthaler-Jones and Mr. Jones both had prior business experience in biotechnology, they founded LiveFuels as an algae business last February. She became chief executive, and he, chief financial officer.
Since its founding a year ago, the company has not attracted outside capital, much less made any money. They need $45 million in seed money. LiveFuels has survived so far with nearly $1 million of family money to pay two full-time and two part-time employees and to rent laboratory space outfitted with a centrifuge and microscopes to research algae DNA.
But the fledgling company caught the attention of the energy world in recent months when it formed partnerships with two Energy Department national laboratories to help revive the government’s moribund algae energy research. The couple are now negotiating with several investors, whom they would not identify.
At the catfish farm recently in the dusty Imperial Valley, they and three advising scientists peppered the owner with questions about the salinity of the water in the ponds, local water rights, evaporation and drainage. LiveFuels would have to use biotechnology to make stronger, fecund and more productive strains of algae to be superheated or pressurized into fuel.
Geothermal activity under the desert could provide a free source of carbon dioxide to bubble up for the algae to absorb and convert into organic matter to process as fuel. But fish farming, the scientists warned, would not be a sure-fire profit-maker and could prove to be more of a diversion of time and capital than an asset.
By the end of a long day, the couple were still not sure whether to invest in the fish farm or not, and this was their fourth visit.
Last month at a biodiesel conference in San Antonio, when Ms. Morgenthaler-Jones met Peterson Conway, an executive with the GreenFuel Technologies Corporation, a competing algae company, he jokingly asked her, “Do you think some day we’ll look at this as rabbit farming or the holy grail?”
She smiled but quickly turned serious. “I wouldn’t put my money and time into this,” she said, “if I didn’t think it would work.”