Traveling through the seasons with Calysta Energy chairman and CEO Alan Shaw, from the summer of IPOs with Codexis — and now back into springtime, courtesy of a technology that plays cheap natural gas.
For eight o’clock in the morning on the last day of a long BIO Pac Rim conference, Alan Shaw was looking more chipper than most.
Of course, news that had just been released that the company he leads, Calysta Energy, had raised a $3 million Series A from existing investors and a new lead venture fund, Pangaea Ventures.
That would put a spring in the step of most CEOs of early-stage companies in these nefarious financing times. Nowadays, Series A venture raises in industrial biotech are about as easy as locating Bigfoot.
But there’s another factor. After years of appearing on BIO panels with titles like “the Future of Cellulosic Biofuels”, Shaw is appearing today to headline a panel on The Golden Days of Gas.
If you hadn’t read elsewhere — or previously in these pages — about a year ago, Alan Shaw had gone over to natural gas, and is leading a company working on methanogens. Which is to say, a company using synthetic biology to liberate more value out of fossil fuels with a microorganism that chews methane and spits out high-value liquids.
Shaw, natural gas? As natural a combination as peanut butter and sludge. He who spun Codexis out of Maxygen and led it through a successful public offering that opened up the IPO window for industrial biotech back in 2010? The Serene Highness of Cellulosic Sugars? Yep, same Alan Shaw.
It’s a move has left some in the biospace, well, apoplectic. Not entirely unlike the reaction on the Jedi Council when Annikin Skywalker went over the dark side.
But unlike so many others, he’s raising money — and that takes some doing. And he reeled in NatureWorks as a strategic partner. NatureWorks, which is to say C-A-R-G-I-L-L, the barons of biomass.
“We all have to diversify,” he says of NatureWorks. “With volatile commodity prices for your raw materials, you can’t depend on corn sugars and only corn sugars.”
Calysta’s Series A
So, Alan’s back. And as we have done in Digestville so many times over the years, we turn to him to see what’s happening on the frontiers.
About that Series A. How easy was that?
“It’s unbelievably tough to raise money in this environment,” Shaw sighed. “Unbelievable. A Series A a few years back, that was $20 million. Now they are $1 million to $5 million, if you can find that much.”
But then again, with all the technological improvements that have come around — hasn’t it changed from the old days when companies like Codexis and Sapphire Energy practically had to build an industry inside of a company, to proceed towards commercialization. With all the developmental infrastructure that has been built — synthetic biology toolkits, rent-a-pilot facilities and so on — how much more valuable is a dollar raised today, than a dollar raised 10 years ago?
“That’s absolutely true,” said Shaw. “The value of $5 million has gone up 10X because of all the infrastructure that has been built out.”
But what about the downstream partnerships, we wondered?
Was it essential these days, the Digest asked, for even an early-stage company to bring a strategic relationship to the table? It seems like only yesterday that it became important to have a strategic on board to complete a decent Series C, as a company heads from pilot to a demonstration at scale.
“It’s just about all strategics now,” he said. “The venture funds? They’re gone from the sector. Like David Copperfield.” He waves his hand like the Vegas magician. “Poof!”
The Golden Days of Gas
What made the difference in the case of Calysta? Was it a transformative technology, the use of natural gas as a feedstock, was it the team?
“There was me, for one,” Shaw said. “There was a relationship there. The gas story is a backdrop, that’s for sure. As far as the technology, we have a long ways to go, given that we are at Series A, to proving out a complete system. So I would have to say it is the team.”
The natural gas backdrop?
“It’s a 10-15 year window, natural gas in the US. And there’s a forecast out there that investors are going to pour $10+ billion per year into natural gas infrastructure over the next 10-15 years. Natural gas is going to change everything in the US chemical industry.”
What about that window?
“It’s a geological advantage. China is sitting on 25% of the world’s natural gas potential, but there isn’t the technology today to unlock it. There isn’t going to be any fracking soon in China; its the geology of the shale formations. It was impossible here too, not long ago. Only now is it becoming easier to extract.
“That’s why it would be a mistake to export low-cost natural gas, instead of keeping it in the US and transforming the chemical industry, with all the value-add opportunities.”
What about the US renewable portfolio standards, we asked?
Is it possible that, because 29 states have imposed low-carbon requirements in power generation, that much of that natural gas will be diverted to the power markets. Aren’t they mandated to buy something to replace coal and reduce emissions? As opposed to the chemicals industry, that has to compete in a global market and can’t simply pass along price hikes to customers, as can regulated utilities?
“I saw that clearly with Codexis,” Shaw noted. “Shell came to us because of the [biofuels] mandates. They wouldn’t have spent hundreds of millions with us if those had not existed. And they walked away from biofuels in the US, when they sensed that the commitment to the mandates had weakened. You can’t make a mandate work unless you are really committed to it, the whole hog. When the oil companies and the government walked away, the VCs followed.”
The salad days of cellulosic sugar
There was a time before the oil companies and the governments and the VCs had done their David Copperfield. If there is a spring in Alan Shaw’s step now — if it’s springtime in Shawville — it was summer back then, in 2009, when CMEA chairman Tom Baruch, Alan Shaw (in his then role as Codexis CEO) and the Digest huddled in a drafty corner of the most challenged event venue in otherwise beautiful Belgium, just a year before the Codexis IPO. Before the quiet period, before the public company period, before Shell’s pullout.
In the Golden Days of Sugar, at the height of the Sugar Rush.
“There is nothing that is going to happen in this space without a cheap source of sugar,” Shaw said at the time. “Without cheap sugar you are never going to be able to replace gasoline with ethanol, and you might never be able to make diesel cheaply enough. You have to blow off the oxygen to make a hydrocarbon from sugar, and you lose a tremendous amount of the mass. If you don’t start out with a cheap sugar, you’re are just not going to be able to make it. And many companies will find that out.”
Find out they did. What about Codexis, though?
“We have a path to cheap sugar, and we have Shell,” he told us at the time. “No one else can say that.”
Of course, eventually it came to pass that Codexis couldn’t even say that, as Shell exited the relationship, and contributed its shares in Codexis to Raizen, its Brazilian JV with Cosan.
There was a period of relationship building between Codexis and the Raizen team, and then there were the rumblings that Raizen was proceeding on cellulosic ethanol but not with Codexis. And then the news that Shaw was leaving the company.
Heading for the exit
“I left because I just didn’t enjoy leading a public company,” Shaw reflected this week. “I enjoy this,” he said with emphasis, gesturing to the crowd of technology hounds milling around the lobby and the coffee area as the third day of BIO’s Pac Rim was set to begin.
“Take Gevo, for example. I’ve known Pat Gruber for a long time, and I wonder why he doesn’t just give up, sometimes. Look at today, where he priced a share offer at $1.35 per share and his stock is trading at $1.10 now. Even his own investors are discounting what the new investors believe the value of the company is.”
[Note to readers: Gevo’s stock closed today at $1.21, down 27.11 percent after a dilutive equity issue.]
It was a rough period for Shaw, the period after the Codexis IPO and as Shell began its long, agonizing pullback from the relationship. Shaw had recruited a substantive commercial team, post-IPO, and paid Dyadic $10 million for a license to its C1 enzyme production platform. It looked set for a big run at all the riches that might flow from a corner on cheap sugar and Shell.
But the commitment to the biofuels mandate weakened. Partly because of falling gasoline demand, partly because of the rise of low-cost natural gas and the good climate numbers the US was putting on the board by converting from coal to gas. Partly because the ethanol blend wall was looming, and E85 was a bust, or so it seemed at the time.
But partly because — well, where were all the cellulosic biofuels?
It’s true — Congress didn’t pull the cellulosic targets completely out of thin air. When they scheduled billion of gallons of cellulosic biofuels by the mid-2010s, they had received considerable encouragement to do so from parties with a stake in that outcome. Shell was hard at work on technology, BP too. Chevron was working on what it thought might be a hot route. And there were cellulosic upstarts, or start-ups, appearing everywhere one looked.
Just like David Copperfield. It seemed like you could wave your hand like the Vegas magician and “poof!” — there were a dozen new ventures backed by an army of venture capitalists.
By late 2011, the Digest had its last conversation with Shaw before his departure from Codexis. He was in a rueful mood on the future of cellulase enzymes. “We’re late to our own party,” he said simply.
The transition from sugar to natgas
It wasn’t much later that Shaw had his shingle out for a transitional period as a consultant, and undertook a massive survey of the biofuels sector. At the time, he said it was liberating to look at the broader landcape after years of being relentlessly focused on the narrative and fate of a single company.
Then, the epiphany. Biomass just wasn’t going to work given the state of infrastructure to move it.
“For Shell, it wasn’t the technology. They walked away from the US for biofuels because they couldn’t get the biomass at the costs and volumes they needed.”
“We’ve had this discussion about sustainability for too long in a completely wrong way. What makes an industry sustainable, a business sustainable, is that, in the first place, the market will sustain it. Everything else is secondary. And that is all about feedstock.
“That’s why the oil and gas industries are sustainable, or rather that is why we sustain them.”
A discovery which led Shaw to embrace natural gas, on the grounds of cost and economic sustainability, after running into a group working on methanogens. That’s a class of organisms that convert methane into other molecules. Something that Josh Silverman had been working on in his lab for some time. That is to say, engineering the organism to make useful, valuable molecules at affordable rates of production.
“I am not interested in science projects,” Shaw once lectured the Digest, finger wagging. “I am an industrialist!” He would jab the finger home as if stabbing an imaginary journalist who missed the point.
“Nothing is useful, nothing at all, in this sector without industrial scale and a market.”
Biology vs traditional chemistry
Today, he pauses for emphasis. “Synthetic biology is doing amazing things. Take LanzaTech, for example, which has done a fantastic job so far. They’ve trained their clostridium [bacteria] to make ethanol from carbon monoxide. Not much point in that. But they are working towards making very interesting products like butadiene from clostridium. Not, that’s a very tough organism to work with, even harder than a methanogen. But it’s the right direction.”
[Note to the readers: LanzaTech works with a range of organisms, including at least three types of clostridium — which is a type of bacteria popular for synthetic biology. But it also works with other organisms, including Geobacter sulfurreducens, Moorella thermoacetica, Caldanaerobacter subterraneus subsp. pacificus, and Carboxydothermus hydrogenoformans.]
“I believe in biology over traditional chemistry, and investors like Tom Baruch continue to believe that biology has to win in the long run, that the cycle will turn around again. It’s a Moore’s Law environment for some biology companies and it is just a matter of time until the technologies emerge.”
But in the meantime — what about all the companies out there working right now?
“It’s tough for the pioneers,” Shaw sighed. “Just tough. But look at what companies like Codexis and others have built in terms of laying a foundation for the others that will come forward.”
Just like the railroads, we asked, that built an infrastructure that unlocked up previously-untouchable fortunes in real estate, mining, and agriculture?
“Exactly,” Shaw agreed. “The problem with technologies like the Model T is that there is an entire generation of products that are enabled by your technology but you only make money selling the car.”
A winter in Westeros
So, the pioneers out there? Rough time ahead?
“There a lot of companies who are hoping that the sector has touched bottom, but it’s going to go on being bad for some time before you get the upturn.”
“It’s like that area in the north in the Game of Thrones. Westeros.”
You mean that sub-arctic tundra near the Frostfang mountains and the Frozen Shore and the uninhabitable polar waste? Where the wildlings live in a barter economy and even simple agriculture is impossible? Where fierce and savage primitive warriors lay waste to anyone who dares to accumulate a little value?
Shaw tidies his notes as we break, to return to BIO Pac Rim. He smiles, ruefully.
“The books are a great read, aren’t they? Not the TV show.”
And he trundles towards the crowds that await the good news on the Golden Days of Gas. Looking not a bit like the Sith — just the same old Alan Shaw, the industrialist now toting his new feedstock and new strategic partner. Greeting old friends as he goes. Perhaps not as green as in the days of Codexis, sugar and Shell — but perhaps, in the end, more golden.
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