Vinod Khosla Holds Biofuel Investments Close

Source: By YULIYA CHERNOVA, Wall Street Journal • Posted: Monday, September 30, 2013

Bloomberg News/Jonathan AlcornVinod Khosla

The initial public offering is the coveted liquidity event for most venture capitalists. But Vinod Khosla, a stalwart supporter and believer in the promise of the biofuels market, hasn’t taken money off the table in his biofuels portfolio companies that went public in 2010 and 2011. In fact, Mr. Khosla has redoubled his commitment to his largest bet, KiOR Inc.KIOR -8.30%, on Thursday.

In a letter filed with the Securities and Exchange Commission, Mr. Khosla committed personally to fund up to $25 million in cash to KiOR, in addition to the $25 million that would come from his firm Khosla Ventures.

Biobased fuels and chemicals are still a small proportion of the U.S. domestic pool, which has seen a surge of production of oil and natural gas in recent years.

The public market has given Khosla’s biofuels companies the cold shoulder, with the market capitalizations of Amyris Inc.AMRS -2.16%, Gevo Inc.GEVO 0.00% and KiOR collapsing over the years post-IPO, mostly due to technical and operational delays the companies ran into. But for Mr. Khosla the game is clearly not over. He used the announcement of his KiOR investment as a chance to address his feelings on the importance of biofuels.

“I remain convinced that biofuels are necessary for America’s prosperity and security and my hope is that in this decade they can match the economics of oil sands and deep offshore drilling, without subsidies. The biofuels industry, if properly funded, is also capable of creating more jobs, with unsubsidized economics, than traditional fossil oil technology and putting every mill town in America with a shut down paper mill back in business as a thriving community,” Mr. Khosla wrote in the KiOR statement.

Here’s a look at Mr. Khosla’s three public biobased fuels and chemicals companies and how they have fared. Mr. Khosla didn’t immediately respond to a request for comment for this story.

KiOR – which produces gasoline and diesel out of biomass, is Khosla’s largest public biofuels bet. It started up its first plant last year, but ran into problems and is just beginning to get consistent production of its fuels.

The company went public in June 2011 at $15 a share. Its shares closed trading on Thursday at $2.89, jumping 58% on Mr. Khosla’s investment commitment.

Khosla Ventures owns more than half, or 58 million shares, of the Pasadena, Texas-based company. Its stake is worth about $152 million.

Khosla created KiOR as a joint venture between itself and BIOeCON BV in July 2007. Prior to the company’s IPO, Khosla put about $60 million into it. And it followed with about $100 million in commitments to KiOR in 2012 and 2013.

Former Secretary of State Condoleeza Rice, adviser to Khosla Ventures, is on the board of directors of KiOR.

Gevo – seeded in 2005 by Khosla Ventures, to ferment biomass into isobutanol, which can be blended into gasoline, serve as a solvent or be processed further into fuels and chemicals.

The Englewood, Colo.-based company went public in February 2011, at $15 per share. It started up its first plant in May 2012, only to shut it down due to microbial contamination several months later. It restarted production in June of this year. In the meantime, its stock fell and is now trading at less than $2.

Khosla Ventures is the largest shareholder in Gevo and, as of April, owned more shares than prior to IPO. It had 7.2 million shares in April, or 16.4% of the company. At today’s prices, that stake is worth roughly $14 million.

Prior to the IPO, Khosla put in about $29 million into Gevo, according to the company’s IPO filing. Gevo’s current market capitalization is less than $100 million.

Amyris – delayed shipment of its diesel fuel called farnesane from its first commercial plant in Brazil because of cost and technical issues. The company did start producing the fuel out of sugar earlier this year. It’s relying on synthetic biology techniques that were first used to develop anti-malarial drugs.

The Emeryville, Calif., company went public in September 2010, pricing shares at $16. It’s now trading at above $2.20 a share.

The market capitalization of Amyris is $173 million, less than half of what venture capitalists put into the company before it went public. The market cap is also in stark contrast to how the company was valued at the very early stages of its development, when it closed a Series B round in 2007 that valued the company at $470 million, as VentureWire reported.

Khosla Ventures led the company’s Series A investment and continued to support it throughout the years. With its 5.1% stake, as of April, Khosla is the smallest of the large shareholders, as of April. Other venture investors still in the company are Kleiner Perkins Caufield & Byers, TPG Group and Naxos Capital.

All three companies went public before opening their first commercial production plants. Delays caused share prices to drop. But now, all three are at a point where they are producing out of commercial plants. Khosla Ventures still has several privately held companies in its portfolio that convert biomass. And the firm notoriously lost money on its investment in Range Fuels, a failure that came under attack by The Wall Street Journal’s editorial page.

“Technology progress reinforces my long-term hope that many of today’s emerging advanced biofuels technologies succeed,” Mr. Khosla wrote in the KiOR statement.