Tuesday, August 24, 2010

VC are trying to leverage up and create an exit strategy

Of proposed IPOs by PetroAlgae and Gevo, BlueFire CEO Arnold Klann is quoted in Biofuels Digest:

“Its not what it cracked up to be,” he joked about being a public company CEO. “They’re trying to raise money, VC are trying to leverage up and create an exit strategy. But a lot of these technologies are hostage to the price of sugar.”

Of legal issues in cellulosic ethanol as seen by the Cellulosic Ethanol Alliance:

“It is hard to get 30 companies moving in one direction,” Klann noted, “but we are positioning to work on some legislative fixes, for example extending production credits because they expire on 12/31/2012 and there isn’t going to be a lot of production by them. Also, extending the investment tax credit to cellulosic biofuels. In our case, we can take some of the ITC because as part of our process, we create power in our system and can tap into the ITC for that.

“Also, we still don’t have a mandated marketplace, and even though the EPA has set a price of $1.56 per gallon for RINs, blenders can opt out because the EPA waives down the mandate. We think we might be able to do this via rule-making, because getting a bill passed in this environment might be difficult.

Of IPOs, from the old days of the internet boom,

Firms no longer needed strong financials and a solid history to go public. Instead, IPOs were done by smaller startups seeking to expand their business. There's nothing wrong with wanting to expand, but most of these firms had never made a profit and didn't plan on being profitable any time soon. Founded on venture capital funding, they spent like Texans trying to generate enough excitement to make it to the market before burning through all their cash. In cases like this, companies might be suspected of doing an IPO just to make the founders rich. In VC talk, this is known as an exit strategy, implying that there's no desire to stick around and create value for shareholders. The IPO then becomes the end of the road rather than the beginning.

In this kind of set-up, the VCs are not checking the patent portfolio, except as it might influence "excitement."


ARNOLD W. REITZE, JR., Biofuels - Snake Oil for the Twenty-First Century, 87 Or. L. Rev. 1183 with conclusion

Congress should slash its subsidies for corn-based ethanol and focus its efforts on research and development efforts to advance the technologies needed to reduce our need for foreign petroleum. We should be working to lower the costs of cellulosic ethanol production as well as working on promising alternative transportation energy sources including plug-in electric vehicles powered by electricity from wind or solar technologies. Energy derived from microbial energy conversion is another promising technology for the longer term that deserves more research and development effort. n460 Second, if we are to use ethanol, barriers to its importation of ethanol should be abolished in order to enhance the na-tion's fuel diversity, although policies concerning ethanol from all sources need to give serious scrutiny to its impact on the environment and food prices. Third, the government should not be working to build an ethanol infrastructure whose economic viability depends on government subsidies. We do not need another economic meltdown because massive amounts of capital were used to develop an industry that is not sustainable. Fourth, the EPA, DOE, DOT, and other relevant executive agencies should be tasked with developing a national fuel policy using a process that is open and transparent. This would include measures to reduce the distortion of the economic system caused by subsidies to the energy industry that would help place the alternative energy industry on a level playing field. A renewable fuels pro-gram should be an important part of a national energy policy, but it must be sustainable, and it should not be based on long-term government subsidies.

**Also 29 Energy L. J. 195


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