Unlike Barack Obama, the smart [venture capital] money has been fleeing the green energy market sector for the past six months. They, along with industry insiders, now see the writing on the wall for an upcoming shake-out amongst the entire matrix of so-called “next generation” energy and transportation start-up companies.
In particular, two partners bugged-out of the vaunted cleantech investment firm of Khosla Ventures at the end of last year, as … “[the] excitement has started to peter out in the once-buzzing clean technology space,” as reported by Matthew Lynley in his August 10, 2011 article in Venturebeat.com, a top venture capital sector publication.
Khosla Ventures partners Jim Kim and Alex Kinnier have followed former partner Gideon Yu in leaving the cleantech investing firm. The turnover has clouded the future of clean technology investment firms, which are exposed to higher risk and lower returns, now that the initial excitement has died down.
Echoing that vision is electric car battery manufacturer CEO David Vieau, who, less than two weeks after his company laid off 125 workers at its Michigan battery plants, said that some of the early entrants into the lithium-ion battery race eventually will lose, according to Nathan Bomey’s December 2, 2011 AnnArbor.com article.
A123 Systems, Inc. floated an IPO in September 2009, after it received a $249.1 million stimulus grant (not loan) from the U.S. Energy Department in August 2009. This, after the company won $125 million in tax credits and incentives from the Michigan Economic Development Corp. in spring 2009, which followed a $10 million cash grant from the state in fall 2008, from then Governor Jennifer Granholm (D).
Since then, A123 has racked up losses of $412 million, and watched its’ stock price fall from a high of $28.02 per share on October 5, 2011, straight down to $1.94 today.
And, after having promised to create 3,000 new jobs in Michigan, and peaking at 1,000, they recently laid off another 125 employees, bringing them down to 700.
However, A123’s problems are mostly related to their largest customer–start-up electric car manufacturer Fisker, who was “cut-off” from the remainder of its Department of Energy guaranteed loan, because it had not reached several production benchmarks–primarily having only produced 239 cars, of which only 50 have been sold.
Roger Ormisher, Fisker’s director of global communications, told AnnArbor.com the automaker’s relationship with A123 is still healthy and that the company expects to produce 10,000 to 20,000 vehicles in 2012.
“What basically happened was our ramp-up in production was slower than we expected this summer,” Ormisher said. “We’ve actually pre-ordered batteries from A123. Our inventory at the factory is sufficient to get us through the first quarter of next year.”
Obviously, this is a house of cards, based more on an environmentalist’s prayer than reality, which was built by the “green job” open stimulus check book of President Barack Obama–not on market demand.
Recently, to draw attention away from his trail of failed green energy companies, which claimed thousands of brand new “green” jobs and nearly $1 billion in taxpayer money with them, and in an obvious attempt to put a damper on the flames of public outrage over the skyrocketing cost of fuel, President Obama touted San Francisco-based algae biofuel maker Solazyme as a solution.
However, on the surface, Solazyme appeared to be just another “dog with fleas,” as Gordon Gekko would say, which raised $227 million in a IPO just last May, only to see its’ stock price plunge from a high of nearly $28 in late July, to just $7.68 by mid-October.
But, Solazyme looks like it could actually be a shining example of our private sector.
Read on…and be impressed
CEO Jonathan Wolfson stated … “We were trying to use the power of biotechnology to solve environmental problems, and make money.” But when revenue stagnated, Wolfson could see the handwriting on the wall, years of stagnant revenue, making it difficult to stay in business, according to Gary M. Stearns recent article in Reuters.
Therefore, as a private sector company, unaided by TARP money, Wolfson and his research and development team investigated alternative revenue streams. “In order to succeed, we had to pivot. It was adapt or die. We had to make adjustments to our business plan and the technology,” he said.
Learning from failure is also critical. “We were right that algae was the best platform to make oil but wrong about how to do it. It soon became clear we were making renewable oils,” Wolfson said.
Their salvation came when one of their food chemists experimented with microalgae and discovered that it could be used as a cosmetic that protects against sunlight or lack of moisture, as well as produce ingredients low in saturated fats that can be used in cookies, snacks and other foods.
Now Solazyme has totally reorganized its product line and is now selling beauty products and nutritional supplements, in addition to fuel that can be used in ground and air transportation.
In fact, the company recently expanded its Algenist anti-aging skincare line, and in partnership with Sephora, a unit of LVMH, the product launched in 1,100 retail outlets worldwide.
Additionally, Solazyme has formed a 50/50 joint venture with French firm Roquette Freres to produce dietary supplements and food ingredients, and it signed a sugarcane venture with Bunge in Brazil.
Pavel Molchanov, a Houston-based energy analyst at Raymond James, recognized that Solazyme adjusted its business model out of necessity, and stated “Solazyme isn’t likely to become in the foreseeable future a fuel-centered business.”
The stock market is agreeing with Solazyme’s strategic and tactical actions, as its’ share price has increased 72%, since October 2011, rising from $12.43 to close at $13.15 today.
Solazyme, through its’ dedicated executives and employees, prove once again that the private sector, will rise and fall on its own merits, motivated by investor capital at risk to make the best possible decisions.
And likewise, President Barack Obama’s performance and attitude prove that he is as good a venture capitalist, as he has been a President of the United States.
As Donald Trump would say…”Barack, your fired!”
Copyright (c) 2012 by Jeffrey Klein
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