Slowing expectations at a green-tech start-up
Six months ago, biofuels start-up Mascoma had the wind in its sails, as did the rest of the clean-tech sector. Now, the company is treading carefully and scaling back.
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.
"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.
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.
"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