Moving from Jatropha 2.0 to Jatropha 2.$

January 17, 2012 |

SG Biofuels scoops up $17M in its Series B financing for its jatropha 2.0 development. But where is jatropha 2.0 today, and where is it going in the near term?

Where are the dollars, the returns, and when? Can SGB really “double the yields, and triple the profits”?

In California, SG Biofuels has completed a $17 million Series B financing led by Thomas, McNerney & Partners with participation from Finistere Ventures and current investors Flint Hills Resources and Life Technologies Corporation.

SGB also announced that Pratik Shah, Ph.D., partner at Thomas, McNerney, and Jerry Caulder, Ph.D., managing director for Finistere Ventures, have joined the company’s board of directors.

SGB will use the proceeds to expand research and development, advance commercialization efforts and scale global operations.

“All the current investors re-upped and some added to their positions,” SG Biofuels CEO Kirk Haney told the Digest. “The company now has the right VC partners in Finistere and TMP, the right upstream partner in developing our genetics in Life Technologies, the right midstream partner in Bunge, the right downstream partner in FHR. All of it really validates jatropha as a platform.”

We noted that investors like Finistere and TNP has, to date, been primarily life sciences investors, more focused on the bio-pharma and medical biotech fields. “Their domain expertise translates well,” commented Haney. “The work that we have down on jatropha in the upstream, the genetics. Basically it is focused in the same area: collecting a bunch of genes, and understanding how their value can be unlocked to solve significant problems. The expertise of TMP and people like Jerry Caulder [head of Finistere] in areas like in-licensing and out-licensing, is going to help us immensely.”

Where is the SGB today?

It has announced the signing of customers for the deployment of 250,000 acres of Jatropha using its JMax hybrid seeds. This includes an agreement with Bharat Renewable Energy Limited (BREL), a joint venture of Bharat Petroleum, India’s second largest petroleum company, as well as JETBIO, leader of a multi-stakeholder initiative including Airbus, the Inter-American Development Bank, and TAM Airlines, to deploy Jatropha in Brazil for the production of bio jet fuel.

Where are the acres?

The 250,000 acre figure refers to pre-orders. In its model, SG Biofuels signs an agreement to establish a trial, in many cases paid for (or contributed to by) the customer. If the trial hits milestones in terms of yield and cost, then the customer agrees to order seed from SGB to cover commitments for a given acreage.

In addition to the company’s main R&D center in Guatemala, there are trials in the ground in India with Bharat, and in Mato Grosso del Sur in Brazil with the JetBio consortium.
In terms of the 88,000 acre (35,000 hectare) pre-order from Bharat, “the trials are in the ground, the data is coming back, the plants are performing,” said Haney.

“The trial in Brazil with JetBio, also performing very well, and that represents a 74,000 acre (30,000 hectare) order from them. That’s been our process, get a certain set of hybrids in the ground, then wait. Our goal has been to get trials in the ground, to show that the plants are yielding what we say.”

The jatropha 1.0 problem

“We have been saying for some time that it wasn’t jatropha that failed in the past, it was the jatropha business model,” Haney continued. “Our job has been to get some data into the public domain, and then and delivering on that, proving that we have what we say we have. I’m a big fan of the book, Crossing the Chasm [the classic book on how to move beyond early adopters, in selling disruptive high tech products, and onto the broader market]. You do a few things well well, then go to the next line, then expand on those.”

Making jatropha work as a crop

“Jatropha has to work at the infantry level, Haney notes. “As an industry, we know how to crush seed, and extract oil, and how to take a triglyceride and find value. Our proposition is to make sure growers make money, at a low cost the the processor.

“At the end of the day, jatropha is a crop. We know the spacing the food it needs, the water, how to prune when to prune, not every acre is the same. One of the good things about so many companies in jatropha 1.0 not pursuing the right genetics, is that there’s been a lot of investment in Ag R&D, in developing data for growers in how to plant.

“Depending on the land, it may be hand harvested, partially mechanized, or fully mechanized. There are some adapted blueberry and coffee harvesters that have been developed for mechanization. Now, jatropha is not exactly like coffee, it’s a seed the side of a golf ball. But the industry understands seed crushing and oil extraction.”

The sales model

We asked Haney about his sales process. Who is calling on growers? “In our business development model, we very rarely call directly on growers; we focus on the buyers of the oil, who have the global energy demand, the mandates. As we are able to push them, we get pull with growers. If you know you have a downstream market, and you know from the trials done in your micro-climate that the crop works, that creates the buzz with the growers. I am a grower myself, with 50,000 hectares of teak plantation in Central America that we developed. I know how finicky growers can be. You need a return. But if you bring a grower where the price is set, and the downstream customer is there, you have shifted risk off their balance sheet; you’ve hedged them properly and they will respond.”

The changing dynamics of the biofuels market: moving upstream

We noted the trend of companies pushing upstream to control their feedstock price. “When Bunge spent $2.5B in sugarcane,” Haney added, “you can see the dynamics shifting to controlling feedstock. There’s a need to go upstream. We think that’s going to be true in bioenergy. Look, the  top 100 energy companies spent $300 billion last year on R&D and CAPEX. For these companies to build out a jatropha project, it’s a couple of hundred millions. But our focus has to be on mitigating the risk to the grower, and proving and providing the right return. That’s why we have focused on the genetics, to unlock the value. That gives us the low costs that will push this crop.”

What’s next for SG Biofuels?

“The first crop is jatropha, Guatemala was the first market,” says Haney. “Then India and Brazil, then bringing on customers. For that, we are heavily investing in seed production, and need to ramp up production, while continuing to invest in R&D. Both TMP and Finistere can help with that process. For now, we are laser focused on accomplishing these goals. After that, there are markets in Southeast Asia, Africa and elsewhere in Latin America, and part of the capital is to bring on more team members that will help us understand those options and develop them.

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