Today, major players in the clean energy investment community provided key perspective and insight to help inform industrial biotech companies and their future success. BIO’s 2011 World Congress Lunch Plenary Session Moderator John May, Managing Director of Stern Brothers & Co, along with panelists William Lese, co-founder and Managing Partner of Braemer Energy Ventures, Michael Curry, Managing Director of Investeco Capital, Kef Kasdin, General Partner of Battelle Ventures, and Don Roberts, Vice Chairman of CIBC World Markets discussed several opportunities and challenges for industrial biotech companies aiming to secure investor funding. Lese asserted that in his view, the current industrial biotech investment “valley of death” should more appropriately be described as the “chasm of opportunity.”
The current investment environment remains tough for industrial biotech companies, panelists said. As Roberts asserted, “governments are broke” and other panelists remarked that, especially given the weakened economy, investors are wary of investing in industrial biotech companies given the sheer amount of money they need to start-up and come on line. Getting to scale, they described, involves more time and money than in other industries such as information technology. For instance, Kasdin explained, IT companies that are now industry leaders like Microsoft and Apple did not require nearly as much cash to start up as some in the industrial biotech industry today. Also unique to industrial biotech investment is the need for companies to take feedstock requirements into account in their investment plans.
Bio-based products and biofuels companies will need to take these current realities into account in their plans to meet their investment needs. Panelists pointed to the two recent industry IPOs: gevo and Amyris and pointed to several common components between the two as potential examples to other industry players going forward. Panelists described that both companies (1) have a bio-based chemistry and drop-in focus, (2) have done a good job addressing feedstocks in their investment plans, and, (3) have capital-light strategies.
In addition to considering these elements, panelists suggested that industrial biotech companies should also communicate their willingness to adapt and to form strategic joint ventures that will help reduce investment risk. Panelists stressed that optionality between bio-based products and biofuels is helpful to reduce commodity and regulatory risk. Also helpful is to bring in partners early. One panelist said that for his company, key types of joint ventures include entities producing feedstocks and entities with assets in place to collect and distribute them.
Panelists fielded an important question from Chris Tindal, Director of Operational Energy for the U.S. Navy, about how long U.S. Defense Department purchase agreements need to be for investors to provide funding to industrial biotech companies in deals where such agreements are a part of the investment strategy. Lese expressed his appreciation for five-year agreements and stated that ten to twenty year agreements would be even more helpful to mitigate risk to investors and encourage them to invest in industrial biotech companies.
Many panelists, including Roberts, warned industrial biotech companies that the window for ample investment and IPO opportunities would close for the industry some day (as it does for every industry), a reality they should be mindful of as they plan investment and IPO plans. However, Lese pointed out that the IPO market for bio-based products and biofuels has picked up in the past year as it is becoming clearer that they are beginning to become more cost competitive.
As Kasdin put it, the current investment environment for industrial biotech companies is “eclectic.” It requires industrial biotech companies to account for current government and economic realities to access the funds required to be successful and to contribute to the development of the current and future bio-based economy.