Presentation on theme: "Khosla Ventures: Investing in Ethanol"— Presentation transcript:
1Khosla Ventures: Investing in Ethanol September 19, 2007Chris Abad Mikhail KhleblaovShadi Sedghi An-Chi Tsou
2Khosla Ventures Background Company FocusSignificant/innovative technologiesSeed to late-stage investmentsBreaking up monopolies- large marketsInvestment of general partners’ capitalInterest in Ethanol2006 production facilities: $1.50-2/gal to $10/galSocial interest- Created in mid-2000s after working in Sun microsystems, experience in Kierestu-style investments, which promotes strategic opportunities and insight to field for portfolio companies-Company focus on innovative technologies: Mobile, alternative energy, bio refineries, sometimes new markets-Interest in ethanol also because the field was dominated by oligopoly of fully integrated petroleum companies.Socially, more focus on energy independence, alternative fuels, etc.
3Comparative Risks of Fuel Technologies they’ve done background research before- look at the risks, like any good investment company should.- they rate the different costs, risks and scale them to compareSource:3
4CO2 Emissions from Alternative Fuels On an environmental safety level, it is also much more efficient to invest in ethanolFig: Carbon Emissions per mile driven of various fuels (Source: NRDC)4
5Ethanol Commonly produced by fermentation, through yeast Yield sugar extractionAdvantages over gasolineAlleviates shortagesMore cost effectiveEnvironment-friendly-Also known as grain alcohol or ethyl alcohol-Been used as a motor fuel- even by Henry Ford. But then gas was cheaper and easier to produce.-In 2004, over 34 billion gallons of ethanol-blended fuel used in U.S. alone
6Value Chain of Ethanol Production RetailRaw MaterialProductionEthanolManufacturingMarketing,Sales &DistributionCornCorn-millingTransportationAutoManufacturersFermentationSugarStoragePolitical TiesE-85 ethanol and other reformulated gasolines + ethanol byproducts, some of which can be fed to cattle.CelluloseBreakdownPlant CellsNon-marketEnvironmentEthanolByproducts
7Where should Khosla invest? Creation of EthanolHigh source of significant technologyCorn fractionationEnzyme-based processCellulose and HydrolysisLarge Market OpportunityGasoline prices increaseDemand for gas is steady
8Where should Khosla invest? Getting Raw MaterialsSwitch GrassNo fertilization; 12 feet tallBransby gallons per tonSkeptics – 96 gallons per tonPotential for improving cellulose breakdown processCornAbundant source in the US; 43% worldwideMuch research in the break down of Corn
9Porter’s 5 Forces Buyer Power Barriers to Entry Threat of Substitutes Demand for alt. energyVertical integration threatHigh bargaining powerBarriers to EntryGovernment tariffsNeed for large volumesLarge capital requirementThreat of SubstitutesProducts not in food chainCheaper options (lignocellulosic)Rivalry- Oil companiesSupplier PowerRaw material productionFood industry competition
10What ventures should Khosla avoid? Distribution and transportationAmerican politicsTarrifs: $0.54/gallon till 2009Protected American ethanol productionOpponentsLower dependence on gasEthanol production in Brazil
11How to Invest Kieretsu-style, parallel investments Competitive Energy sources (yeast variants, enzymes)Ethanol creation (corn milling, feedstocks, sugar, etc.)ComparativeU.S. corn productionkieretsu-style definition: focus on specific technologiesAdvantages are that you share insights and strategies, have more opportunities for businessRoom for scientific breakthroughs to reduce high energy inputlignin (a subproduct of the breakdown of plant cells) can be burned and add energy to the ethanol production process and also the lignin combustion can be used to generate electricityCelunol Corp had genetically engineered a bacterium to convert sugars to ethanolMascoma and new themophile microorganisms that improve energy efficiency in converting ethanolyeast strains that could hydrolyze cellulose then ferment the resulting glucose.Competitive: focus on newer, breakthrough technologiesComparative: who can produce more corn, more efficiently. In US, we have high tariffs on incoming corn, sugar, etc. so this is a comparative advantage of us having the corn production capabilities.
12Value-Chain Coordination ClustersLower transportation costsImprove communicationForm key alliancesFarmersAuto manufacturers- do clusters like they do in the semiconductor business to promote more people working together- different sectors working closely.-auto companies and corn production facilities are all in the midwest- super convenient. ethanol production facilities are there too!- this leads to forming key alliances
13Innovation Ethanol Production Viability for investment Energy sources Corn processing/milling techniquesCorn productionCellulose productionViability for investmentEnergy sources- scientific breakthroughs, gov’t investment-Corn milling/processing techniques- enzyme-based process rather than wet milling process.-Improve efficiency of transportation, manufacturing equipment.switchgrass_biofuel_green_ener.html
14Future of Ethanol Technologies -Obviously lots of good prospects in technology for ethanol- producing it is becoming more efficient and getting greater value for the same area. This is good!-That means that will be able to produce more fuel with the same amount of acreage.Source:14
15http://blog.wired.com/cars/images/ 2007/06/20/ethanol_fuel_pump.jpg The Future of EthanolPotential as additive/alternative to gasolineFlexible Fuel VehiclesHighly complex political, economical concernsCapitalEnvironmental-Political concerns should help improve the efforts to make ethanol more mainstream- environmental concerns, competition with other countries, etc.-Main concerns are with the huge initial capital investment and concerns with the environment- what will happen with the crops and cattle with all the corn being grown only for fuel purposes?-But with better technology in the future, this shouldn’t be as big of a problem. Huge potential for investment- a lot of scientific research in many fields within the ethanol production part of the value chain. Lots of profitable opportunities2007/06/20/ethanol_fuel_pump.jpg