Heliae: Big Changes at the Top
CEO Dan Simon and COO Adrian Galvez head for the exit; CFO Craig Johnson becomes interim CEO.
What happened? The Digest relates the tale.
In Arizona, The Digest has learned that CFO Craig Johnson will become interim chief executive officer of Heliae, effective immediately. He takes over from CEO Dan Simon, who will be moving into an advisory role with the company, including some activity in the capital-raising sphere. In addition, COO Adrian Galvez stepped down to focus on other professional opportunities.
What happened?
“It started about a month ago with Adrian’s departure,” Craig Johnson told the Digest. “Adrian is a true professional and decided for personal reasons to make a change. The change afforded an opportunity to review the business a little bit, and we realized in that review that we needed a more full-time local presence. Dan Simon [note to readers: Simon is based in Steamboat Springs, CO] agreed with that, and will remain in an active role including on the advisory board. Then, the board asked me to step in and be responsible.
Plans to recruit a permanent CEO?
“At this point there is no current plan, we’re not actively looking. Over the next couple of months we’ll reevaluate, but there are no immediate plans for the next 3-4 months.”
What prompted the change in thinking about having a full-time CEO in Arizona, since that’s not been the case in the company’s history to date?
“There wasn’t any single catalyst,” Johnson said. “We know that there is a wide and deep variety of opportunities in algae and we needed to narrow the focus a little bit. It’s always a challenge to manage a company, and especially remotely, and the lion’s share of Dan’s time was focused on capital-raising. Dan will in all likelihood continue to work with us on that, with our investment bankers [3 Ocean Partners] — after all, he’s passionate about the company and remains one of our major shareholders.”
What are the product sets that have emerged from the review?
“We call them GP1, GP2, and GP3,” Johnson told the Digest. “GP1 is astaxanthin, which we are already working on and producing in Gilbert. Our [astaxanthin] JV in Japan [with Sincere Corporation] is still moving forward, we are working through design and development at this time; everything is on track. We are doing some further refining for the scale-up of the nutraceutical process, and we expect we’ll be in commercial operation by year-end.
“GP2 is our Volaris technology. We’re focusing on AgScience opportunities there. Right now, we’ve got two products identified, a biostimulant and a plant protection product. The first one, the biostimulant, enhances the germination and makes the plant stronger. The other is for protection as it grows. There’s huge customer demand, based in the need to move away from chemicals to organic growth stimulants.
“With Volaris, we are working through the scale-up, it’s more about optimization, making sure we are coming up with the right size and dimension. Normal things with a scale-up. There aren’t any 90-degree turns. Pricing varies pretty widely. Right now [with Volaris], we’re more in demonstration mode than active commercial production.
“GP3 is food and feed additives. Our first product is MAA product. “We’re still looking at which reactor we’ll use with the MAA product — Volaris or tank reactors. We haven’t landed on which is the right platform. This sector is in the earliest stage of the technology, of the three. We’ve had limited success with tanks so far.
How much capacity can you handle at Gilbert with the current acreage?
“Gilbert is at commercial scale,” Johnson told us, “though we can’t do hundreds of thousands of tons here. We can ultimately produce 5-20 tons per month. Right now we’ve got the demo unit which can produce a ton a month.
The next size commercial reactor is not yet finalized but will probably be a five-fold increase to five tons per month. In terms of today, at Gilbert, we have 20 acres. We are using 7 to grow astaxanthin, and the remainder here is likely 13 for Volaris.
What’s new with the relationship with Clarecastle?
“That’s a TBD,” Johnson said. “We need to review that in the context of our narrowed focus going forward.”
Any material new revenue events to report since the January report of $4.2 million in sales?
“There’s nothing new to add to what we’ve already reported,” Johnson said. Were there any significant additions or layoffs associated with the changes in this review, aside from Simon and Galvez leaving the company? “Through this review we narrowed the focus, and looked at core and non-core projects in that new light. There were some reductions in personnel in association with that review, but less than 10 percent, and we are not planning any more changes [in this review].
Where is the company in terms of is next funding round?
“We’ve got varying degrees of commitments at this point, we expect to be closing by the end of this year or at the latest in the first half of 2015. The current investor group still committed and confident.” So, sports fans, that’s the state of play and Heliae’s take.
The Digest’s take – concerns
Let’s look at a couple of factors here.
1. Volaris. Volaris was rolled out 16 months ago, described as “a game-changer that will enable large-scale production for diverse markets and provide a natural, sustainable, and consistent supply of algae-based products to meet worldwide demand.” At the time, the company said that “With Volaris, we can drop the dollar per kilogram cost to a point that makes algae immediately attractive. The flexibility we have in this technology allows us to control output traits and deliver exactly what a customer needs from our algae. This increased product optionality will open new markets for algae.” So, what’s our concern? That Heliae is contemplating not using Volaris for at least two of its three platforms, has not announced much commercial activity around the system in the 16 months, and is describing it in terms of “optimization” and “scale-up” at this time.
2. The People Equation. Algae-based CEOs have known to earn mid ten-figure paydays from bringing a company forward from early-stage through to IPO — it’s that tough to do, and that lucrative for those who succeed.
Though the joys of Steamboat Springs, CO have no bigger fans than The Digest, we’re not entirely buying into the idea that an algae company CEO like Dan Simon would walk away from such a lucrative, and societal-changing opportunity simply because “we realized in that review that we needed a more full-time local presence.” In our experience, COOs don’t generally leave in the face of such opportunities, either — especially with companies that have a “current investor group still committed and confident,” and with a lead product expected to be “in commercial operation by year-end.”
3. The Capital Equation. If capital-raising is such a time-consuming, bandwidth-chewing task that it has subtracted from the necessary focus at corporate HQ, we’re not entirely sure how knocking the existing CEO down to an advisory board role and tapping the CFO to take on those duties, make a lot of sense, while losing a COO leaving for personal reasons.
The company, with these changes, is left more bereft of bandwidth for managing the Gilbert site and capital-raising, is it not? Not to mention, left with two changes in management to explain in the capital marketplace, not a month after Aurora Algae and Sapphire Energy also lost their CEOs.
The Digest’s take – the positives
1. Investor confidence. The investor group, as afore-mentioned, is current investor group still committed and confident.” And Heliae chairman Frank Mars added, “This is an exciting time at Heliae. With each production run, we continue to refine our technical parameters. Algae production is not easy, but we are eager to enter this next phase and support the momentum that has been built over the last few years. We appreciate Dan’s contribution to the company in bringing the technology from concept to reality, and assembling a dedicated and experienced leadership team to realize our vision. We now look to our technical and commercial teams, led by Craig, to hit the next set of milestones on the path to commercialization and scale.”
2. The Market mix. The company has a pretty good mix of product it can make a) today, at high prices; down the line at lower margins. For a 20 acre facility and perhaps 100-200 acre rollouts, not a bad target.
What’s Next?
We wrote this some time ago about Heliae in particular and about algae in general — the danger of setting highly-specific expectations on product mix, technology packages and the like, from algae companies:
It’s easy to knock tomorrow – after all, by definition, tomorrow’s not here yet. Everything that is not made yet fails the “if we don’t have it, there must be a good reason” test. Lots of things fail the “If I don’t understand the exact pathways, outcomes and returns, I’m not satisfied” test.
Take, for example, the problem of five-year-old children. Why invest public dollars in their moral or scholastic education, when you absolutely know, in five years, all you are going to have is a ten-year old that is going to require even more investment?
To raise kids, we have to take perplexing 25-year journeys through dark waters, with financial requirements and returns that would not, ahem, exactly thrill corporate executives seeking 20 percent IRRs and three-year payback.
But there are those in every generation who undertake the journey – understanding that part of the magic is in the journey itself – in the unexpected discoveries along the way. Parents are confident that, given the right applications of innovation, imagination and discipline, the modern adult will appear. If only corporate parents could learn therefrom.
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