How biobased energy, consumer goods will become the biggest vertical in cleantech

July 19, 2013 |

microalgaeTo Thrive, Biofuels Need the Right Kinds of Investors; The Rest Should Get Out of the Way

Yet despite all of these advantages, there are still many bio-focused companies struggling to find the funding they require. May believes it’s because they’re failing to see alternative financial solutions available to them. An albeit creative, but nevertheless available pool of investors exists – they’re just looking for the right technology to back.

“I recently worked on a deal that had a lot of innovative attributes – loan guarantees, bonds, new market tax credits which are totally non-dilutive, low-cost subordinated capital that replaced a slug of equity that would have had to be raised.  This was from a strategic equity firm not a private investor or VC,” explains May.

According to May, not only was this creative mix of financing part of the success, the stability of the industry involved – paints and solvents in this particular case – was also highly strategic. Unlike energy markets where prices fluctuate constantly, it was easy to make a case that the unguaranteed bonds wouldn’t require an off-take. What’s more, though most post-2008 project finance structures require a contracted cash flow, in this case it was not needed because of the lack of volatility.

“You don’t need the risk mitigation. If we give you an off-take with the biggest chemical companies in the world, why are we paying any interest? You don’t have any risk!”

The lesson learned by May that he’s applied to dozens of other bio deals is that when you de-risk a project (technological risk, feedstock risk, and off-take risk) for debt and equity, then combine the deal with an eclectic mix of financing, and then guarantee a minimum main play or production yield, you can make lenders comfortable and seal the deal.

Further, says May, those in the bio-based sector have to get out of the business of convincing people that it’s the kind of industry where they can achieve the rapid scale-up, hurdle rates, time horizons and liquidity events they’re used to. “It’s not solar, wind, or energy efficiency, and it doesn’t scale like software. It’s never going to and we have to stop apologizing for that.”

Rather than pinning his hopes on VCs, May’s approach is to find investors already in the same frame of mind rather than trying to coerce them into doing something they aren’t comfortable with. As such, his firm works with family offices, strategics, high net worth individuals, and even dabbles in crowdfunding.

In the end, May concludes: “It takes decades, and if you can’t wait to get to the point where the project is going to pay you a dividend, then don’t invest. You need to orient yourself to a de-risked approach to the debt and to the proper sources of equity.”

Technology Transformation, Alternative Financing, and Listening to Consumer Demand Spells Success for Bio-Based Materials and Goods

The path toward success for bio-based products and materials may be a winding one. It requires paying attention to which bio-based solutions consumers want, adapting existing bio technologies to new markets, and doing a little creative thinking on the financing end. But for those who can juggle these demands skillfully, there is a lot of reason for optimism.

Actually, to take the argument to its logical conclusion, given the potential for bio chemicals and fuels to invade nearly every facet of the supply chain as they replace petrochemicals, it’s only a matter of time before they surge past fossil fuels as well as wind and solar in terms of how they impact our daily lives. The potential treasure for those willing to take risks and push forward with renewables is substantial, to say the least.

As May concluded, “Bio will be the biggest industrial vertical in the cleantech space. The technology out there is just amazing.”

Richard Herbert is the President of Helix Recruiting, Inc.  A boutique executive search and recruiting firm that specializes in: cleantech and renewables; specialty chemicals and alternative fuels; utilities and power generation.

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