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Bringing Biobutanol to Market: Bioenergy PROFITS Principle, Position Only for Growth

| August 23, 2010

By Biofuels Digest columnist Dr. Rosalie Lober

Among the seven Bioenergy PROFITS Principles, one stands out as a force that launches a whole cascade of actions for the other six.  Position Only For Growth is the lead PROFITS principle and the key to success.  Position Only For Growth is essential to growing any business, and it helps create opportunities for sustaining your profitable growth.

Today we explore Gevo, a company that believes in its product, Isobutanol – and is willing to make a full commitment to commercialize and bring it to market.  Gevo leaders are not stopped by any real or imagined barriers and stay focused on their goal of producing isobutanol from numerous renewable feedstocks.  Within the past couple of days, Gevo signed definitive agreements to acquire Agri-Energy’s ethanol production facility in Luverne, Minn.

“This transaction is another important step in achieving our goal of bringing commercial volumes of renewable isobutanol to the market as soon as possible,” said Dr. Patrick Gruber, CEO of Gevo. “The Luverne plant is a very well run facility with a strong operating team. It is a great place to begin our commercialization effort. We expect the facility will be the first among many and want it to be a model project for the future.”

  • Know your customers from your customer’s perspective
  • Generate priorities

‘Know your customers and their customers’ is such an overused phrase that most people never think about its complexity.  What’s more, your customers today may not be your customers tomorrow.  It is critical to stay current about your customers and their customers.  Their customers will evolve and change as their business does, just as yours will.

Let’s first learn about Gevo.  Gevo is developing capital efficient biorefinery systems to provide renewable, cost-effective building block products to the fuel and chemical industries. Gevo seeks to convert renewable raw materials into isobutanol and renewable hydrocarbons that can be directly integrated into existing fuel and chemical products to deliver environmental and economic benefits. Gevo is committed to a sustainable biobased economy that meets society’s needs for plentiful food and clean air and water.

Know your company from your customer’s perspective

Customers are savvier now than in the past.  They have more choices due to the internet and other efficient distribution channels.  What are your customers buying?  What is the basis of their choices?  How do you ‘measure up’ to your customer’s standards?  How do customers perceive your products and the way you operate your business?

Gevo has studied the market over its five year lifespan and its leaders followed the market and then decided to found the company in 2005.  Here are some of what they learned about isobutanol and what potential customers look for in isobutanol production.

Isobutanol is a naturally occurring, four-carbon alcohol found in food and some alcoholic beverages. It is also a “drop-in” platform chemical with broad applications in the product of approximately 40 percent of petrochemicals and 100 percent of hydrocarbon fuels. It can be used directly for a solvent and converted to isobutylene, the raw material for plastics and fibers. Gevo believes its isobutanol will provide a route to the renewable production of rubber, polypropylene, polystyrene, and PET. Isobutanol can also be used directly as a gasoline blendstock and as a building block in the production of hydrocarbons found in petroleum-derived gasoline, jet and diesel fuels.

Gevo has engineered enzymes that can convert waste and other cellulosic feedstocks into alternative fuels and chemicals like isobutanol, which can be used in the existing petroleum supply chain, as well as for plastics, fibers and polymers. The company plans to commercialize its technology by retrofitting corn ethanol plants to produce isobutanol, and will either create joint ventures with ethanol producers or buy off ethanol plants to make the conversions.

Gevo has several big customers lined up for 2012 when they start commercial production, including: LANXESS, Total, Toray, United Air Lines, and CDTECH.

Generate priorities

When profitability is your goal, your priorities must be those that respond to your customer’s needs and to your customer’s convenience.  Your evolving relationship with your customers will provide the information you need to adapt to their current desires.

The best ways to learn about your customer needs is to think from their perspective.  This will guide you to generate your company’s priorities.  Some of the winning strategies utilized by successful companies include alleviating customer constraints to working with you, outsourcing non-core operating expenditures and creatively expanding your available options.

Gevo is an example that utilizes all three of the above strategies.

Compared to competitors that are funneling hundreds of millions into building their own biofuel plants, Gevo anticipates that it will spend $22 million to $24 million to retrofit a 50-million-gallon-per-year ethanol plant, and $40 million to $45 million for a 100-million-gallon-per-year ethanol plant. The company already has several key partnerships including with ethanol project designer ICM, with which it has retrofitted an ethanol plant in St. Joseph, Missouri, that can produce 1 million gallons of fuel per year.

As a priority for commercialization, Gevo has developed a proprietary process designed to fit into current ethanol production facilities. The process also enables the production of isobutanol from numerous renewable feedstocks including corn, wheat, sorghum, barley, sugar cane and cellulosic feedstocks when biomass conversion becomes commercially available. Gevo’s integrated fermentation technology (GIFT™) platform consists of two components: a yeast biocatalyst and a separations technology unit that bolts into existing ethanol plants.

Gevo accomplished many milestones since its inception when it was founded in 2005. It was seeded by Khosla Ventures.  In 2007, the company raised a $3M Series B, from Virgin Fuels.  Around that time they started ramping up R&D expenses.  The company met lab-scale technical milestones and raised money to hire researchers to scale the technology to the pilot stage.  The Series B was done at a $22.5M pre-money with additional Series A-4 capital raised at the same time. Khosla Ventures contributed one final tranche at a slight discount to the Series B.

In 2008, the company raised a $17M Series C, with new investors Burrill and Malaysia Life Sciences Capital Fund alongside existing investors.  This round was a big step-up in valuation, to a $48M implied pre-money.  Much of that step-up is attributed to having licensed a key piece of the IP from UCLA.

In 2009 they raised a $33M Series D, at a pre-money greater than $80M, with oil company Total as the new money.  The company had opened up that pilot facility, had begun construction on their first demo-scale plant, moved to Colorado, formed a partnership with a key commercial/production partner, and started ramping up the G&A spend.  Much of that round was intended to finance the construction of that plant.

Earlier this year they raised another $33M in a Series D-1.  This was a big step up in valuation, to an implied current post-money of $314M  If the company IPOs this year, those shares get re-valued to 75% of the IPO price. The  management team is pretty motivated to make this IPO happen.

Gevo, like other 2nd generation biofuels companies, wrestles with the challenges of both 1st time project finance, and then the overall drying up of project financing for biofuels. Though not expecting to profit from commercial revenues until 2012 they are planning around this significant problem.

For capital efficiency, Gevo’s leaders are looking to do retrofits of ethanol projects, and have partnered up with ICM (an ethanol plant engineering firm) to identify and build out the first such plant.  They formed their own subsidiary which will be funding the projects during the development stage.   TriplePoint provided some debt financing to enable the first project.

Leaders of successful biofuels companies such as Gevo, know their customers from their customer’s perspective and then use this knowledge to effectively generate priorities

Position Only For Growth is one of the seven Bioenergy PROFITS Principles. These Bioenergy PROFITS Principles highlight proven principles to running your business more effectively and are featured in Dr. Lober’s forthcoming book, DELIVERANCE:  From the Valley of Death to Sustainable PROFITS in Bioenergy. (Ascension: 2010).

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