Warburg Pincus, First Green Partners form new $355M venture capital group for biofuels, renewable chemicals and green-black technologies

December 9, 2011 |

Cameron, Erickson to head new fund. Seed stage to full commercialization vision. The rise of the green-black economy. Uh, the what economy?

In Minnesota, Warburg Pincus announced that it will invest up to $355 million in First Green Partners, a newly formed early-stage venture capital company.

First Green will, in turn, invest in early-stage companies that focus on developing methods of converting renewable carbon, such as non-food biomass and carbon dioxide to fuels and chemicals, and applications of clean or green technologies in the conventional energy or industrial process, otherwise known as green-black technologies.

First Green will make initial investments of $500,000 to $10 million in each emerging technology and up to $100 million in a single business as it commercializes.

The team

First Green is led by co-presidents Doug Cameron and Tom Erickson.

Cameron was formerly chief science officer at Khosla Ventures, and served as director of the biotechnology group and chief scientist at Cargill.

Cameron is currently a Consulting Professor of chemical engineering at Stanford University, and was formerly a professor of chemical engineering at the University of Wisconsin, Madison from 1986 to 2000. He was the recipient of the Raphael Katzen Award in 2009 and formerly served as chief science advisor and managing director in the cleantech investment banking group at Piper Jaffray, a global Minneapolis-based investment bank.

He was also acting CEO for Gevo (Nasdaq:GEVO), LS9, and Segetis, and served or continues to serve on the boards of select bioenergy companies, including Kior (Nasdaq:KIOR) and Mascoma.

Erickson is a co-founder and general partner of BlueStream Ventures, a venture capital partnership focused on technology companies, and a former research director and technology analyst at Dain Rauscher Wessels, a Minneapolis-based brokerage and investment banking firm.

Deal size and scope

Cameron commented, “We plan to do 10 early-stage/seed deals over then next 3-5 years.  We have already started talking to companies.  No specific plans yet, but hope to do first investment in next few months.”

Why now?

“There is a mismatch in the marketplace,” Cameron added, “between the advanced technologies and innovations related to the carbon value chain that can change the energy landscape, and the lack of capital to help commercialize them.”

Why Warburg?

Warburg Pincus has more than $30 billion in assets under management. Its active portfolio of more than 125 companies is highly diversified by stage, sector and geography. Founded in 1966, Warburg Pincus has raised 13 private equity funds which have invested more than $40 billion in over 650 companies in more than 30 countries.

On the energy side, the firm has provided over $5.5 billion of equity for 42 companies around the world involved in oil and gas exploration and production, midstream, power generation, oilfield technology and related-services, and alternative energy development.

First Green Partners co-president Tom Erickson added, “Warburg Pincus has deep domain expertise in the energy industry and a broad network of relationships in both conventional and unconventional energy. The partnership with Warburg Pincus validates our business plan and strengthens our ability to participate in an increasingly capital intensive industry.”

What is green-black, anyway?

We have been hearing a lot more about these type of technologies of late.

Take LanzaTech as an example. Here’s a technology in which a microorganism ferments carbon monoxide taken from, for example, blast furnaces at steel mills, to make fuels and chemicals. It’s green, of course, in the same way as a microorganism that ferments, for example, low-cost sugars derived from cellulose.

But it’s more than just a greentech play, because it remediates, adds value to, and depends on the old technologies. Hence, it’s green-black, not just green.

Other green black technologies? “Technologies for treating oil sands tailing ponds,” says Cameron, “and for the use of methane for making more complex fuels and chemicals.”

It’s a wide field of potential. For example, consider the opportunities in what have been termed XTL processes. There’s biomass-to-liquid (BTL) – that would be a typical biofuels technology such as cellulosic ethanol. But, then, there’s coal-to-liquid (CTL) and natural gas-to-liquid (GTL), and there are a few technologies that can combine two or more, hence XTL. Accellergy, for example, is gaining traction in China with a strategy that uses coal as its basic feedstock for making liquid fuels, and supplements biomass as a means of lowering the overall carbon impact.

That’s a conventional energy (or “black”) technology (CTL), to which a green technology and strategy (BTL) has been applied. Hence, green-black.

Another example. Take Glori Energy. It’s oil-loving microbes, also known as its AERO System (Activated Environment for Recovery of Oil), stimulating a reservoir’s naturally occurring microbes to improve water sweep and oil mobility. Glori Energy’s aim? To sustainably and efficiently recover billions of barrels of oil trapped in reservoirs using existing oil wells, in partnership with oil producers.

(Parenthetically, we sure are glad that Glori Energy was renamed. In a really deep Texas accent — not uncommon in the oil recovery world — the previous name, Glorioil, sounded way too much like “Glory Hole.” Yecch.)

Why is green-black important?

Well, it’s especially financeable, and scalable. In most cases, like enhanced oil recovery using biological processes, the scale’s already there, and there’s an enhancement of domestic oil production without opening up new fields in, say, the Arctic wilderness. Legitimately green, legitimately easy to move towards commercial scale, by deploying across an existing fleet.

It’s a significant idea, squeezing higher values, and higher value products, from the existing industrial steel in the ground. It’s not entirely unrelated to, say, the use of greentech to liberate value from Waste Management’s aggregated landfill-bound organic wastes.

Whether using, say, Enerkem’s thermocatalytic process, or the MixAlco process from Terrabon, or INEOS Bio’s gasification-based approach, they are all, to some extent, green-black.

Though, to do so, we are stretching the definition to some extent, away from its strict definition at the nexus between black energy and green energy technologies.

Should green-black be limited to energy – what about other waste streams?

As has been mentioned so many times elsewhere in the Digest’s stream of consciousness, the world’s carbon problem is not that it has too much carbon, and needs low-carbon strategies. The problem is that the carbon is badly distributed. It’s floating around overabundantly and diffusely, in the atmosphere, instead of being fixed into a convenient system with  combinations of hydrogen and oxygen (i.e., your friend water) to make useful things like energy, food, flora and fauna.

Strategies that utilize carbon and liberate value, using residues otherwise emitted from older process that make anything from shale-based energy to tennis shoes, can be green-black. Whether that value comes from conventional energy process, or conventional household operations (i.e. municipal waste), or conventional industrial process (i.e. steel mill off-gases), is immaterial.

Imagine, in the future, a world that reutilizes one organism’s or industry’s residue, fully and efficiently as a feedstock for some other organism. That’s not entirely different that the CO2-oxygen symbiosis that exists between, say, animals and trees. Or the symbiosis between animals, plants and bacteria.

Symbiosis? That’s a five-dollar word. Elsewhere, its called synergy. Which sounds like energy. Which is good place to start finding it – that all-too residue intensive industry that creates so much value at so low a price that, for too long, we haven’t minded that it leaves a lot of garbage behind.

Your new best friend, the micro-varmint, unlocker of value

Of course, now the garbage has piled up. Waste? That’s generally been a festive environment for methane-producing bacteria. But here come the green-black industrial technologies, armed with their highly trained bacteria, fungi and algae, to jump on the pile and produce new materials. Only, as domesticated micro-varmints, producing materials that are needed, in ways that are synchronized, like a symphonic industrial process arising out of a cacophony of slag and random emission.

Bringing carbon where we need it, when we need it. Now that’s a varmint worth getting behind. And an efficiency worth funding.

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