Green Tech

Editor's note: This is part of a series of stories about the recession's effect on the tech industry.

On paper, things couldn't be much better for Bruce Jamerson. As CEO of Mascoma, he runs an ethanol company staffed by brilliant scientists, wooed by state governors, and amply funded by General Motors and leading green-tech venture capital firms.

But late last month, he made the painful decision to shed staff in an effort to control costs. Even though Mascoma's a private company, there is no escaping the trickle-down effect of the skidding stock market.

Mascoma CEO Bruce Jamerson

(Credit: Mascoma)

"Because we're not going to have commercial operations for several years, we need to make sure that our cash lasts as long as we can," Jamerson said. "All companies in the clean-tech sector should be considering this."

Many already are. After being lavished with attention and money for years, many green-tech entrepreneurs--the foot soldiers in a hoped-for clean-energy revolution--are being forced to shift into low gear.

The recession and slumping financial markets are choking the flow of money, which is the lifeblood of fledgling green outfits. Meanwhile, lower economic activity is causing fossil fuel prices to plummet, making some green businesses a tougher sell.

Green-tech entrepreneurs do have other options for getting money beyond traditional venture capitalists and angel investors, such as government loans or state grants.

But the same danger signals that Silicon Valley venture capitalists have broadcast to Web start-ups applies to green tech as well.

"There is such compelling logic behind a lot of the technologies, but there is a real hunkering down going on," said Mark Barnett, an attorney at Foley Hoag's clean-tech practice. "If you're a venture capitalist, to give a company more money, you have to believe they can weather the storm...and be one of the first out of the gate when things clear."

From Wall Street to South Dakota
Unlike many people who have jumped into clean tech over the past few years, Mascoma's Jamerson, who's in his early 50s, knows quite a bit about the fuels business and finance.

A year and a half ago, he was president of Sioux Falls, S.D.-based VeraSun, which grew to be one of the biggest ethanol makers in the country. He was chief financial officer until it went public in 2006, when investors' love of ethanol made it a hot stock. (It recently filed for bankruptcy.)

His financing chops come from working on Wall Street, where he engineered investment banking deals for 10 years before abandoning it all to run a boutique investment firm in Oregon.

After being VeraSun president for almost a year, he resigned last February to join a little-known start-up called Mascoma, not bothering to take a vacation day in between jobs.

He was lured to Mascoma--prodded by high-profile investor and board member Vinod Khosla--because of its technology, he says. Using genetically modified microbes, Mascoma promises to make ethanol cost-effectively from non-food feedstocks, like wood chips.

Mascoma CEO Bruce Jamerson at the announcement this summer of a plant to make ethanol from wood chips. Pictured with him on the left is Beth Stanek, General Motors' director of energy and environment policy, and Michigan Governor Jennifer Granholm.

(Credit: Mascoma)

Like many people in the clean-tech business, Jamerson sees his small ethanol firm as part of a larger clean-technology movement to encourage domestic fuel production and reduce greenhouse gas emissions.

He says Mascoma is at the "edge of the wedge," the intersection point of many trends, including high energy prices, climate change, and policies promoting energy security. It's considered one of the front runners in the race to make ethanol from non-food sources.

Caution after a great run
Cracking the nut on cellulosic ethanol is one of the biggest technical hurdles to meeting government renewable fuel mandates and improve the public image of biofuels.

Click for complete special report

"There are a lot of places in the world where the appetite is very strong for this type of product," he said at a Mascoma lab tour in Dartmouth, N.H., where Mascoma was first hatched.

Indeed, on the whole, the company has had a great year. General Motors and Marathon Oil invested in the firm and became strategic partners. Michigan and New York, eager to diversify into renewable energy, have given Mascoma grants to build pilot plants. Technically, Jamerson said that Mascoma's ahead of schedule in meeting its milestones.

But even buoyed by all that optimism, Jamerson and the company's board decided it had to lay off employees, including its president and a number of vice presidents.

"These are hard decisions. The way I'm thinking about it, I'm being conservative with my expenses," he said. "It just so happened that the reductions were skewed toward a couple of senior people."

Rather than have to make more cuts in six months, he decided that it was better to have a cost-reduction plan now. Its plans to build pilot plants in Michigan and New York are not in jeopardy; the cutbacks were made so that the company could continue hitting its goals, Jamerson said.

Not every green-tech entrepreneur is in the same boat. Companies that need late-stage funding, to finance a solar manufacturing plant or biofuel refinery, are perhaps in the toughest spot.

Businesses that focus on energy efficiency, for instance, stand to do well as companies look to save money, whereas biofuels like ethanol are more closely linked to falling prices of gasoline.

But it's the disarray of the financial markets that has Jamerson most concerned. Mascoma had planned to go public in the next two years, but that's a lot less certain these days.

"That window has been closed for now and with institutional investors being more cautious, we need to be cautious," Jamerson said. "We need to get through this period of time."

Next in the series: Survival of the fittest for IT companies

BOSTON--Oil giant BP and George Soros' investment firm are putting millions of dollars into a company that has isolated a microbe that can create ethanol.

Qteros, formerly called SunEthanol, on Tuesday announced the $25 million series B round of funding, which was led by venture capital firm Venrock and Battery Ventures. Other investors were BP, Soros Fund Management, and first-round investors Long River Ventures and Camros Capital.

(Credit: Qteros )

Massachusetts Gov. Deval Patrick--a clean-energy industry backer--announced the funding and new company name at the Fourth Conference on Clean Energy here Tuesday.

The basis of Qteros is the Q Microbe, a micro-organism discovered in the woods near the Quabbin Reservoir in western Massachusetts by University of Massachusetts professor and now Qteros chief scientist Susan Leschine.

The naturally occurring bug is able to efficiently produce ethanol from the cellulose in plants, according to Qteros. The company has spent the past year breeding different strains of the bug to enhance certain characteristics and make it more productive.

The money it raised will be used for further product development and to build a pilot ethanol facility next year, using agriculture residues, sugar cane bagasse, and corn stover as feedstocks. After that, it intends to do a larger demonstration facility in 2010 and then operate a commercial-scale plant in 2011.

The microbial approach to making ethanol, called consolidated bioprocessing, is a potential breakthrough in cellulosic ethanol production.

Many start-up biofuels firms are developing different methods for converting wood chips, grasses, and agriculture or forest residue into the liquid fuel ethanol, which is a gasoline additive.

By using microbes to make cellulosic ethanol, Qteros intends to streamline a multi-step process and entirely eliminate the use of expensive enzymes, which can account for roughly 30 percent of production costs.

"Using the Q Microbe as a keystone piece eliminates large amounts of capital, large amounts of cost, and makes the process economic," said Qteros CEO William Frey who led BP's biofuels business before joining the company.

Another company pursuing a similar path is Mascoma, a well-funded ethanol company spun out of the Dartmouth College. It, too, is developing micro-organisms to make ethanol without enyzmes, but its scientists are genetically engineering the microbes.

Qteros Executive Vice President Jef Sharp said that optimizing a naturally occurring microbe alllows Qteros to make ethanol "without the lengthy, expensive, and genetic engineering requirements of taking another bug to do it."

Rather than build ethanol plants itself, Qteros plans to license its technology to ethanol producers which plan to diversify from corn ethanol into other feedstocks, said Frey.

Biofuel start-up Mascoma has laid off a handful of employees, including President Colin South and other executives.

The total number of eliminated positions was between 5 and 10, CEO Bruce Jamerson said Friday.

Mascoma is one of few well-funded companies that have developed technology to make cellulosic ethanol from nonfood feedstocks. General Motors and refiner Marathon Oil are investors.

Click on the image to see a photo gallery of Mascoma's lab, where scientists are engineering microbes to produce ethanol.

(Credit: Mascoma)

Jamerson said Mascoma continues to hit its technology and business milestones. But he and the board felt that it was prudent to cut costs, including personnel.

Because of the upheaval in the capital markets, Mascoma cannot go public to raise additional funds, and institutional investors are being more cautious now. So the company is positioning itself to hold on to cash as long as possible.

"I'm trying to get ahead of this," Jamerson said. "I don't want to find out that in six months, things are more challenging. Then when you make cost reductions, it's even harder."

The company raised $61 million in equity earlier this year. It has also gotten Department of Energy grants, and money from New York and Michigan, to build its first pilot facilities.

The state grants are not in jeopardy, Jamerson said. "I met with the governor of Michigan the other day. It's a priority for them. It will create a lot of jobs in northern Michigan," he said.

The clean-tech sector overall is feeling the effects of the financial-market turmoil. Public companies, such as solar providers, have seen their stock prices drop. Firms looking to raise late-stage financing or project financing to commercialize their technology are also facing difficulty, according to investors and entrepreneurs.

Ethanol producers that use corn as a feedstock are suffering from a significant drop in corn prices since earlier this year. VeraSun declared bankruptcy, and Pacific Ethanol reported a significant third-quarter loss earlier this week.

Amyris Biotechnologies on Wednesday announced the opening of a pilot facility in Emeryville, Calif., that turns sugar cane into diesel fuel through genetically designed microbes.

The company is at the forefront of a commercial movement to use biotechnology to convert plants into fuels that resemble petroleum-based hydrocarbons.

Amyris' technique is to genetically engineer a yeast that can metabolize sugar into the desired molecules. Its first effort was to develop a malaria vaccine, which it continues to do, and it has since developed a focus on renewable fuels.

(Credit: Amyris Fuels)

"We're engineering the yeast, reprogramming it from making alcohols to making hydrocarbons," CEO John Melo said. "We started with E. coli (bacteria), which is what many other companies are doing, but we moved to yeast because we discovered that it was more scalable."

The company has also modified yeasts to produce chemicals; a sugar-derived jet fuel is planned for in about three years as well.

Through a partnership, Amyris plans are to produce biodiesel from sugar cane at commercial scale in Brazil by the middle of 2010. Brazil is one of the world's largest producers of ethanol, using sugar cane as a feedstock.

Amyris' biodiesel can be blended at up to 50 percent concentration with petroleum diesel, higher than most biodiesel today, which means that it can be pumped through existing pipelines. Environmentally, Amyris' "renewable diesel" has lower carbon emissions than petrodiesel and burns cleaner, Melo said.

Amyris has set up a distribution subsidiary and intends to sell its biodiesel to fleet operators, such as Wal-Mart Stores and FedEx.

Melo said the economic slowdown has forced the company to shelve its plans to go public next year.

It does expect to raise some form of capital in the next two years, either through venture funding or strategic partners, he said. The company expects revenue to increase rapidly next year, to more than $100 million, he added.