06 Oct Alternative energy Visions: Virent looks for a successor to Apfelbach
Editor’s note: Virent Energy Systems’ is close to an important transition. The company, which has a patent on its BioForming fuel production process, soon will name a successor for chief executive Eric Apfelbach, and that person is likely to have experience in energy markets. Apfelbach, meanwhile, is in the discussion stage of trying to start a new venture capital fund to support engineered technology solutions.
WTN: What is Virent’s preferred exit strategy, acquisition or IPO?
Apfelbach: You don’t know what the exit is going to be. Obviously, going public is pretty much impossible right now, but windows open up periodically. To be a public company these days, you really want to be a growth company that has a platform that can be expanded and be profitable. If we prove that we have economical and scaleable green gasoline, and it’s IP protected, we would be an excellent public company.
The reality is that most companies that are venture-backed actually sell versus go public. The public markets have not become friendlier, and so many people think if they can get a good valuation on a merger and acquisition transaction, they will go ahead and do that instead of get in a messy public market. The reality is that the probability is over on the acquisition side, but that’s what’s exciting about Virent. We have the potential to be a large-growth company and prove the economics of scale.
WTN: How goes your search for a chief executive with energy market experience?
Apfelbach: We’ll have an announcement of who that person is probably in the first week of next year, or early next year. We have some very good candidates that we’re happy with, and I would expect we’d be able to get one fully on board by then.
WTN: When that happens, what will your role be in the company?
Apfelbach: Actually, I don’t even know yet. I may retain a board position for a while but probably not long term. We still have an open seat right now, actually, so that’s also been an activity we’ve been undergoing.
It’s very much like the CEO search in terms of who are the best people that you want to have as part of a strong public offering. You have to have a board that is made up of people that would be a good public board. I’ve never been on a public company board before, so my credentials would not be optimum. Could I do it? Probably, but a lot of times with a public company board, you’re looking for some very different skill sets.
WTN: For the opening that you have now, are you looking at any particular industry sector or a particular set of skills?
Apfelbach: Right now, we’re looking for a lot of liquid fuel market and liquid fuel business experience. When you think about what we’re doing, we’re taking a disruptive new technology into an old, existing fuel infrastructure, and we obviously have some great partners, but we don’t know which parts of our strategic effort they will occupy in the future. We don’t want to be beholden to anybody, so our board members need to be able to figure out a strategy where a small, young company can go from where we are to, if we’re successful on our pilot, each plant we build will probably cost $250 million to build.
We’ve got customers that say, ‘we want a billion gallons of fuel a year.’ Well, if you’ve been successful in your pilot, you’re suddenly capital constrained. You’ve got to raise $1 billion to $2 billion to make one billion gallons of capacity. In reality, the market is insatiable, basically, as long as you can find feedstock at a good price.
It’s an interesting flip that you do right when you say, ‘okay, this is a commercial process and now let’s build capacity’ because the amount of money you’d be talking about would be tremendous. It becomes a financing issue much more so than a technology issue.
WTN: What are your projections about available feedstock, and what are the different sources that will be available you?
Apfelbach: We think there is going to be a succession from the feedstocks that are out there now. We think sugar cane and the plant that the sugar cane comes from is going to be the cheapest, most scalable feedstock on a global basis for quite a while. People are genetically engineering sugar cane as well to produce more sugar per acre and take less fertilizer and less water. A lot of the work on feedstock is being done here in Madison at the DOE Center.
You go into that and say, ‘okay, now there is other feedstock potential that is good in different climates. Obviously, sugar cane is going to be best within some distance from the equator, whereas sugar beets, sorghum, cassava, and things like this have very high sugar content. If government policy would get out of the way, they could be extremely good feedstocks for any biofuels process.
WTN: When you mention government, are you referring to restrictions on the import of Brazilian sugar cane?
Apfelbach: Sugar cane sucrose (table sugar) is price supported here in the country to be food and table sugar. It’s price supported at around 22 or 25 cents per pound. World sugar pricing is usually between 12 and 14 cents a pound. Everybody asks, ‘why can Brazil produce ethanol so cheaply?’ Well, they don’t price support sucrose down there and force biofuels manufacturers to buy it at two times the normal price, like we do in this country.
Those are some of the things that have got to change now that these feedstocks are going to be used as energy and not food.
WTN: Given how Washington works, what are the prospects for that?
Apfelbach: It’s a slow ship to turn, but in this year’s farm bill a fair amount of progress was made on some key issues. I think this year in the farm bill, what we were fighting is that all of the biofuel incentives were targeted at ethanol. If you weren’t making ethanol, you were out of business.
Obviously, we’re making green gasoline, so our major effort this year was to get the word ethanol replaced with the word biofuels in a lot of this legislation because most people like our fuel better than ethanol. We shouldn’t be disadvantaged because we’re making something that’s not ethanol. We were able to get that pretty much done.
The other thing is we have 50 percent more BTUs (British thermal units) per gallon than ethanol does. We’re making an energy product, and right now all these incentives and tax credits are done on a per-gallon basis. In essence, ethanol is getting an unusually large credit, considering it’s got 50 percent less energy per gallon. We would love to get that changed as well.
WTN: What would you do outside of Virent?
Apfelbach: I’ve had a lot of good offers from California, but I’ve had that my whole career. I made a decision early on that I was going to move back to Wisconsin and try to help the high-tech community here, and that’s what I’m going to do.
A lot of people know that I’ve got a proposal out there to start a new venture fund here in Madison. I’ve got an outline to start a new, early-stage venture fund.
WTN: Would it be for a particular industry sector like clean energy, or would it be more broadly based?
Apfelbach: My background is engineering, so it would be targeted to what I call the engineered solution, and clean tech is in there – all of the engineering solutions that are required to get clean technology. And also information technology. So we’d be looking at a lot of the computer and IT-related technology. Biotech is pretty well covered from Venture Investors here in town, and there are a lot of angel investors that are very focused there. I think the underserved area in Madison and Milwaukee is on the engineering side.
I think there is huge, huge opportunity here in this state. I think we are underserved in general with venture capital and start-up formation. That’s my whole thesis behind starting a new fund, that we can accelerate that process. I started Alfalight, and I’ve raised $80 million in venture capital in the past eight years. It’s not that hard to do if you know how to get the business plan and the technology positioned correctly.
There are probably 20 more companies where if I had the time, I could go do. I think that’s what’s exciting about Wisconsin, that the hard part – the technology and intellectual property and university support and the angel community – are getting much healthier here. These things, the tough part, already exist. Now all we have to do is get some additional venture capital help, and I think the important part is the brains and best practices from the [Silicon] Valley.
We’re going to partner with a Silicon Valley venture capitalist in a real way and get management talent and best practices from Silicon Valley operating here in Madison. If we did that, we’d have entrepreneurs moving back here. I’ve never had trouble moving people into Madison if the opportunity is here. We’ve moved people in from all over the world.