
A Biofuel Dream Gone Bad - danso
http://fortune.com/kior-vinod-khosla-clean-tech/
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mikeyouse
I worked for a competing biofuel company and our story reads very similarly to
Kior's. Aside from the internal problems that everyone has, the price of a
barrel of oil moving from $100 when we were founded to $180 while we were
fundraising to $60 while we were trying to commercialize just wrecked our
story and business model. Nice article though. I'm nostalgic and tempted to
try again focused purely on speciality chemicals.

~~~
keithpeter
Do you think there is a case for developing 'proof of concept' pilot plants
with subsidy even if the price of oil is so low that there would be no
commercial business that could be carried on?

Just so that if/when things change in the future the technology is well known?

(I'm in UK, politics around subsidies a bit different)

~~~
mikeyouse
Honestly, that's just about what's happened.. All of the companies in the
biofuel world (KiOR, Solazyme, Amyris, Aurora, Algenol, Joule, Sapphire) spent
a ton of money -- I think everyone on that list blew through >$100M -- to
develop the technology and get to the pilot level. They all failed trying to
commercialize.

The technology still exists in the form of IP held by the investors, so if the
economics ever make sense again, it would be a much shorter route to
commercialization than the first time around.

We absolutely have the ability to make large amounts of energy from algae,
cyanobacteria, cellulose, etc. Given a few hundred million in CapEx to get a
plant off the ground and a few tens of million in working capital, most of
those companies break even with usable fuel at ~$150/bbl. If you relocated the
facilities to a low-cost-of-living area and started with, say $1B, you could
likely produce for ~$100/bbl. Unfortunately, the return will be very low and
unstable based on global energy prices. The pitfalls of producing a volatile
commodity.

Another random thought is that we were seeing immense progress in the quality
of work out of Asia for engineering and construction for the facilities. It's
_expensive_ to put steel and concrete in the ground, shockingly so for many SV
investors, but the quality was quickly improving out of China / Thailand for
custom-engineered oil/gas processing equipment. Assuming this continues to
improve, the future costs will be much lower.

~~~
keithpeter
OA did mention many companies failing but not in the detail you have in your
first paragraph.

Your last paragraph suggests that amortization of the capital used to build
the plant is a major factor in the cost per barrel of oil-equivalent.
Historically in UK, we have had subsidy (and insolvency!) to offset capital
costs for canals, railways, some roads, and some of the _early_ electricity
generation (pre-Nationalisation). There have been 'public-private'
partnerships since (i.e. taxpayer takes a chunk of risk) some of which have
worked and some of which have been more questionable.

Good luck!

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ArkyBeagle
"The result was a relative preponderance of lab researchers with Ph.D.s and a
dearth of people with technical, operational experience running energy
facilities. "

Yep. But the plummet in energy prices alone would have doomed it.

~~~
intopieces
So the failure was due to circumstances Kior could not have controlled, yet:

'"In the suit, Mississippi Attorney General Jim Hood described KiOR as “one of
the largest frauds ever perpetrated on the State of Mississippi."'

Something doesn't add up here. The loan was only for $75m, and by this account
the founder put in much more than that in his own money.

It sounds like MS took a gamble they weren't prepared for and are now trying
to get what they can out of it. Fraud doesn't seem to enter into it, but maybe
that's just the bias of the article I'm picking up one.

~~~
mikeyouse
You've got it.. The state help (we looked at it as well) involves making tech
predictions about where your yields will be and your cost structure will be in
3-5 years... It's nearly impossible to get these projections right, and the
companies are obviously optimistic so when the numbers come up short, it looks
like they were lying. I highly doubt there was any actual fraud. It won't
matter anyway, the whole point of running a business is to shield the
investors from liability, none of our (smaller) incentives ever involved
guarantees from investors.

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graycat
I see a pattern in the article. The pattern seems to apply to the writers of
the article and also Khosla and his firm.

The pattern: Hover about 100,000 feet above reality where really can't tell
the difference between a horse, cow, or bison. Can't tell the difference
between a Model T and a current Chevy SUV. Instead, just look at really
simple, crude, external things and ignore the complicated, internal, crucial,
core things. Like trying to learn how to build a rocket to go to Mars by
watching all the episodes of _Star Trek_ or all movies of _Star Wars_. Like
trying to learn auto engineering by watching NASCAR races on TV.

Silicon Valley has managed to get by with this view from 100,000 feet because
of some special considerations, but in general for engineering, applied
research, and advanced technology that 100,000 foot view doesn't work.
Instead, details matter, right down to the last nut, bolt, washer, wire,
switch, light, clamp, tube, weld, etc.

Silicon Valley? Okay: A startup is based on software. The hardware and systems
software are rock solid and standard. Clearly there is _traction_ ,
significantly high and growing rapidly. The product/service is clearly for a
large market. The technology is clearly highly scalable by routine means.

All the technical parts are just routine software that can be done by a major
fraction of the software developers in Silicon Valley. Nothing else looks bad.

There are several founders, each male, each with a pregnant wife. The founders
are desperate for some cash and are eager to sign a term sheet with some
really onerous terms, things like claw backs, cram downs, liquidity
preferences, pro rata rights, with four year vesting of the stock by the
founders, and where the BoD is dominated by the venture investors and can fire
anyone in the company for any reason or no reason before their stock is
vested. So, presto, bingo, invest. Biofuels are very different. Sorry Vinod.

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Animats
Fuel from cellulose has been around from a long time, back to WWII. It works,
but it's always been a marginal technology economically. Around 2012, lots of
companies seemed to be building plants, and some of them even started up.[1]
But few seem to break even.

It's frustrating that this doesn't work well, since most plants are powered by
agricultural waste (stalks, cobs, etc.) that is already being produced and
just has to be collected. However, it's good to know this can be done, since
someday, oil will run out.

[1] [http://www.renewableenergymagazine.com/article/abengoa-
celeb...](http://www.renewableenergymagazine.com/article/abengoa-celebrates-
first-commercialscale-next-generation-biofuel-20141020)

