"Stay Midwest, young biofuels entrepreneur": a counterpoint

January 31, 2011 |

On Friday, the Digest received a surge in comments on its Top Story, “Go West, young biofuels entrepreneur,” in which we wrote:

“As we examine the great technologies that are moving forward and the great technologies that have struggled for support, the difference between all too many of the winners and losers can be summed up in just three words: California postal address.

“And so, though we admire our friends in the halls of academia and corporations around the country, love the fertile soils of the Great Plains and the great forests of the Southeast, and though we salute the intrepid investors of the Boston-Cambridge corridor: go west, young biofuels entrepreneur. Your fortune lies beyond the 110th meridian, where the old frontier still is home to the frontiers of imagination.”

Not all readers agree. One of the most compelling and thoughtful responses we’ve received in quite some time came from a Minnesota-based group headed by Todd Taylor, a prominent biofuels attorney who graced this year’s Top 100 People in Bioenergy, and including Christina Connelly and Ralph Groschen at the Minnesota Department of Agriculture, Mark Lindquist at the Minnesota Department of Natural Resources, Gregg Mast and Tim Welle at the BioBusiness Alliance of Minnesota, and Doug Cameron, of Alberti Advisors, formerly of Piper Jaffray, Khosla Ventures and Cargill.

Their entertaining counterpoint is here:

Counterpoint:  Stay Midwest, young biofuels entrepreneur

California is a great state no doubt–it is hard to argue with many of the Digest’s points. we have many friends and clients in California and always enjoy my visits.  However, while California may be leading in biofuels technology development, it was not always that way and other states, such as Minnesota, have much to offer biofuels entrepreneurs.  We appreciate that the Digest recognizes that the Midwest is a great place to deploy biofuel technologies, but we think we here in the heartland deserve props on development too.

The Digest is right to praise California for its success and we admire Solazyme, Amyris, LS9, Codexis and the algae companies in and around San Diego such as Sapphire as well.  Their innovation and drive is amazing and we count many of them as my friends and colleagues.  Venture capitalists in California support and encourage these and many other companies and deserve ample credit for the Cambrian-like explosion of new technologies.  As we rightly applaud them, let us remember that they have advanced as far as they have in no small part because of the efforts of Midwestern biofuels pioneers whose efforts convinced Texas oil man turned President George W. Bush to promote ethanol as essential to American energy policy in his 2005 State of the Union speech.

Biofuels entrepreneurship and its Midwestern roots

The first biofuels entrepreneurs were from the Midwest: First Generation biofuels got its start in Minnesota and quickly expanding throughout the region.  Whatever your thoughts are about corn ethanol and soy biodiesel, there would not be a biofuels industry without the vision and risk-taking of Minnesota’s farmers.  These early pioneers created an industry based on existing technology, competent engineering and a cooperative farming community. They developed and pursued supportive policies and identified favorable technology, feedstock and off-take avenues with billions of dollars in hard assets in the ground.  Advanced biofuels proponents, of whom I am certainly one, would do well to duplicate their success.

As we look at what we mean by “entrepreneur,” we should consider that farmers, the drivers of First Generation biofuels, are some of the most entrepreneurial people in the world.  Merriam-Webster defines “entrepreneur” as “one who organizes, manages, and assumes the risks of a business or enterprise.”  Farmers do that every day; every season as they face multitudes of risks outside of their control–including weather, input costs, and ever changing prices.  They risk their entire business every season.  Good years can be great, bad ones can absolutely devastate.  Farmers in the Midwest understand risk and reward, and most importantly how to manage in both the biofuels and agriculture space.

As the Digest said, California VC’s started looking at biofuels after 9/11.  We started looking at them in the 1980’s and we welcomed our California cousins even as they arrived 20 years later. Ron Fagen, whose company based in Granite Falls, Minnesota has built a majority of the ethanol plants in the US, built his first ethanol plant in 1988.  POET, then Broin, built its first plant in South Dakota in 1986.  POET is now the largest US ethanol producer and is working on Project Liberty, a cutting edge cellulosic ethanol project in Iowa.

Corn Plus, a Minnesota ethanol plant originally built in 1993, uses wind turbines and a fluidized bed to halve its electrical and natural gas usage.  US Bioenergy, started by a South Dakota banker and based in Minnesota, conducted a biofuels IPO in 2006 and went on to merge with Verasun to form the largest ethanol producer at the time.  This banker started a new advanced biofuels company as well, building off his previous success.

That was then, this is now

But that was then–what about now?  Can the Midwest really “identify, invest, incubate, iterate, initiate an IPO, and inexhaustibly support a venture based in ideas, intellectual property, and invention” like California?  Maybe not in the same way, but in our own way, definitely Yes, and with great success.  We did it in medical devices (Medtronic), industrial and consumer technology (3M), Consumer Goods (Best Buy and Target) and more.  More recently and in biofuels, POET, Green Plains Renewable Energy, The Andersons, Advanced BioEnergy and more are large-scale ethanol and agribusiness companies started in the Midwest.

Segetis, Reluceo and Draths are biochemical companies that received recent venture investments (mostly from California…) and until Draths moved to Michigan to be closer to its founders, both were based in Minnesota.  Virent, based in Madison, Wisconsin, is pursuing a sugar to hydrocarbon strategy with backing from Cargill, Shell, Honda and others.  There are many others laboring out of the spot light that have the potential to be just as important.

The Digest praises California for having a culture that encourages entrepreneurship.  This has led to an impressive history of successful companies spinning off entrepreneurs that start up other successful companies. Minnesota has accomplished much the same.  Just look at all of the bio-materials companies that have spun out of or been formed by Cargill alumni, one of the world’s largest agri-business companies–and based in Minnesota:  NatureWorks, Elevance and Cargill BioH.

Out of NaturalWorks came Draths, Segetis, Green Harvest Technologies, Gevo and the Executive Director of the Algal Biomass Organization. Segetis alumni started up Rivertop Renewables, XL Terra and Reluceo.  Gevo–one of the first biochemicals companies to pursue an IPO, recently selected as its first commercial scale plant an ethanol plant in Luverne, Minnesota—which was started by a forward looking group of entrepreneurial farmers in 1998.  BioAmber, a succinic acid company, has its R&D facility in Plymouth, Minnesota run by a former Cargill and Draths executive.  There are many more.

Resources in feedstocks, management and science

In Minnesota, Wisconsin, and Michigan, the forestry industry has enormous resources to contribute, including raw materials, talent, and infrastructure to advanced biofuels entrepreneurs.  While cautious, the industry knows it needs to diversify and is actively looking for worthy partners.  Our scientific strength is equally impressive, boasting leading academic programs in materials science and chemical engineering, along with great depth in agriculture sciences. We also have robust biofuels infrastructure—on the farm, at retail stations, and on the roads (225,000 flex fuel vehicles in Minnesota alone)—and need only build upon this existing strength rather than develop it from scratch.

The Midwest has been vital to the drive for renewable energy nationwide, using its land, knowledge and money to build first generation biofuels projects, large wind projects, biomaterials companies and biomass energy companies.  Funding for these projects typically are community driven, but this does not mean small.  During the height of the ethanol boom, it was not unusual for a community to raise $50 million or more of equity in less than a month to fund a new ethanol plant—and on terms far less strict than a typical VC.  Wind projects even today receive significant community support and many of the same biofuels pioneers are now working with advanced biofuels companies to seek financing and project opportunities in the communities that have traditionally been interested in anything that can add value to agriculture.

While not as glamorous (or warm) as a trip to Sand Hill Road, a trip to many small towns in Minnesota can be just as, if not more, productive for biofuels entrepreneurs.  Getting connected with multiple community leaders may take some effort, but may still be easier than getting a meeting with Vinod Khosla or John Doerr.  Minnesota, and the Midwest generally, has a growing and enthusiastic community of angels, venture firms, non-profits, consultants, government agencies and other professionals that are experienced and eager to help make advanced biofuels successful. Minnesota has vast expertise in agriculture and forestry.  We have existing infrastructure, equipment, biomass, and markets.  In short, we are among the best at turning biomass into something more.

The Digest said, “Start at the Statue of Liberty, face the setting sun, and walk that way.” On your way, stop in Minnesota and see what you can accomplish in a state that has already done what California is only just beginning to embark upon.

Todd Taylor adds: I need to thank the many people who had a hand in writing this counterpoint, because the network and expertise in biofuels in Minnesota is large.  Christina Connelly (who gave me the idea for this article) and Ralph Groschen at the Minnesota Department of Agriculture, Mark Lindquist at the Minnesota Department of Natural Resources, together form part of the Green Enterprise Assistance Team, an interagency working group helping renewable companies succeed in Minnesota. Gregg Mast and Tim Welle at the BioBusiness Alliance of Minnesota, a non-profit bridging the gap between policy and business. Doug Cameron, of Alberti Advisors in Minnesota, formerly of Piper Jaffray, Khosla Ventures and Cargill.  Each provided assistance and all are active proponents of Minnesota and the Midwest for biofuels, biomaterials and clean tech in general.

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Category: Fuels, Thought Leadership

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