The Algae Solution Transcript
Stephen Smith: From American Public Media, this is an American RadioWorks documentary.
Chris Erikson: Green 2.0. Greenside. Triple Green. Green Silk. Ooohhhh smooth.
Smith: American businesses are going green.
David Plasick: There's going to be a huge scramble in this marketplace for ecological something - anything, really, okay?
Smith: From credit cards to biofuels to solar energy. Everybody's making claims.
Plasick: There's going to be a lot of false claims. There's going to be a lot of sincere people. Perhaps some insincere people along the way.
Marianne Wu: It's not some sort of little blip that this is hot today. And you know, tomorrow it's going to be some next hot thing.
Smith: It's a Green Rush, from American RadioWorks.
Smith: In 1847, a remote hamlet in northern California was renamed San Francisco. Soon after, prospectors discovered gold in the nearby Sierra Nevada foothills. A mighty gold rush was on as waves of men and machines surged into the region to carve riches out of the Earth. Today's there's a different kind of frenzy underway. Think of this one as a green rush, and, like the gold rush, legions of the hopeful are lighting out for northern California to stake a claim.
[CleanTech Conference]
Smith: If the green rush has a boomtown, maybe it's also here, in San Francisco, at the annual CleanTech Venture Conference. It's a gathering of alternative technology companies and investors. Each year the CleanTech rendezvous gets bigger - packing a vast meeting hall with investors who control more than a trillion dollars. Chasing these deep-pocketed funders are eager entrepreneurs.
Exhibitors: (Montage of voices)
My company is Global ID Group.
I'm with Best Energies
Green Catalyst
E-3 BioFuels
Flex Energy
I'm with Audura Technologies.
Smith: And they're here for one reason:
Exhibitors: (Montage of voices)
We're raising capital.
There's a lot of venture capitalists here.
We're looking for some capital to build our first manufacturing plant here in the United States.
We need to raise money to make this a mass market opportunity.
We have brains, we have technology and if we add money, we will make money and we will clean the environment in ways that haven't been done before.
Smith: The investors are courting "venture capitalists" - people who bankroll companies with big risks in the hope of making a big profit in return.
James Horn: I think it's pretty clear that we're entering a new world.
Smith: James Horn, is with a venture capital firm called "Noventi," which focuses on clean-tech start-up companies.
Horn: I mean it's a $6 trillion market, the energy business. It's such a vast market that there is really is sufficient potential to justify the investments that are going into the market right now. And again, we are very early on in this process.
Smith: A process some hope will help save the planet from catastrophic climate change. For the world to break its addiction to fuels that suffocate our skies - it's argued - the profit motive is an essential weapon. In the 1980s and 90s, venture capitalists were the risk-taking, financial powerhouse behind the Internet boom. Now they see green tech as the next big opportunity. And as in the Internet era, new companies are popping up in every garage - all looking for investors to back them. Producer Claire Schoen gives us a rare look inside one small start-up company with a secret technology it hopes will strike a vein in the green rush.
Claire Schoen: Guido Radaelli's rented house in the Berkeley Hills enjoys sweeping vistas of the San Francisco Bay. But the sparse furnishings hint at his status as a recent grad student. One peculiar addition to the decor is found in a loft overlooking the living room.
Guido Radealli: So we go upstairs where we grow algae. We are actually cultivating algae in closed fish tanks.
Schoen: Radaelli leads us to four ordinary fish tanks filled with a thin, light green liquid. When we first met last fall, these four tanks were the entire laboratories for Aurora BioFuels. Aurora is the brainchild of three guys fresh out of grad school at the University of California at Berkeley. Matt Caspari is an M.B.A. Bert Vic is a Ph.D. Candidate in bio-chemistry and Guido Radaelli studied chemical engineering and business. The three came together at school over a revolutionary idea: algae as a source for fuel.
Schoen: So, uh, it looks like a bunch of green water to me.
[laughter]
Bert Vic: It's a microorganism; it's a micro-algae, so it's not like seaweed or something like that - or kelp. You don't really see anything in the water except the color of the water changing. You can see them under a microscope.
Matt Caspari: Uh, you need to harvest the algae out of that water. And then we'll actually extract oil from it. So, you can get the algae out of the water and you can get the oil out of the algae. We've done it. We've done it. So, we know that much at least (chuckle). That's been proven.
Schoen: Helping fuel the world with humble algae oil is not as farfetched as it may sound. A hundred years ago, some of the first diesel engines ran on peanut oil. And today, fuel made from soy and corn is a booming business. But those crops have a problem - they depend on valuable farmland and precious fresh water. Algae, on the other hand, thrives in wastewater. All it needs to grow is sunlight and air.
Vic: The actual growing of algae is not anything that impressive. It's kinda like - its just pond scum, really,
[laughter]
Caspari: Tell a little bit more about your love of the algae.
Vic: It's a love/hate relationship.
Radealli: It's a challenging relationship because I have to come here every morning, every night, take samples, check the pH, check the temperature, check the nutrient level and keep them growing as you do with your flowers.
Caspari: It's like his child.
Radealli: Yeah, it's true.
Vic: They are linked telekinetically.
[laughter]
Vic: The salvation of the world is in those tanks, right there. It may not look impressive, but it is.
Schoen: The Aurora team claims to have developed a technology that dramatically boosts algae's oil producing capacity to 100 times that of soy and other crops. They call it "super algae." It's a very profitable calculation - especially considering the amount of diesel burned by American trucks and tractors.
Caspari: We consume 60 billion gallons of diesel fuel every year, so if our technology does what we are claiming it can do, it's a major opportunity and it's attractive for venture capital investors and we decided to start thinking about, "Could there be a business for this?"
Vic: And I think we feel that this is the type of business that has a double bottom line, not only a very healthy, from a financial standpoint, but also from a social and environmental point of view as well.
Schoen: So, just add money?
Caspari: The odds aren't with you. The odds aren't with you to get venture financing. Once you get venture financing, the odds aren't with you that it will be, you know, at all successful. And even the successful ones, you know, you hear the company's sold for 100 million dollars. Well, how much do the entrepreneurs really own?
Vic: Founders only get a small portion.
Caspari: Not a lot. You know, it's kind of crazy, but you can't do this for the money. Go be an investment banker and you're much more likely to make good money. It just can't be the motivating factor.
Vic: You have to enjoy the process.
Schoen: There's a lot of money flowing into alternative energy - $70 billion in 2006. But as with any boom there's also fierce competition. Aurora needs to get its name up in lights so investors take notice. Six months after the company's founding, Aurora enters the Intel Challenge, the world cup of business plan competitions. We're at Berkeley's Haas School of Business where this year's Challenge draws competitors from around the globe.
[Registration table]
Coordinator 1: So, in there are their name tags.
Coordinator 2: Yeah, Egypt, Jordan, no?
Coordinator 1: And then um, hello!
Competitor: Russians! Russians are coming. Great to see you at last.
Coordinator 1: Yes!
Schoen: Aurora is competing.
Vic: I think we'll win. [laughter] We have to go in with confidence.
Coordinator: Marvelous. Lunch is right around the corner.
Caspari: There's a prize of $25,000 and that helps. But, um, a strong lead with a venture capitalist is probably more valuable than that.
Schoen: Investors from Silicon Valley's leading venture capital firms are here to judge the competition - and also to scout out possible deals. One of the judges today is Marianne Wu of Mohr Davidow Ventures. Wu has already been talking about a deal with Aurora. Wu: We have certainly had conversations with Aurora. Energy is the fundamental driver behind daily activity, behind industrial growth, behind our commercial infrastructure.
Schoen: It's time for Aurora to pitch its project to Wu and the other judges. The team moves from the bustling hallway to a small, wood-paneled meeting room.
Radealli: We are Aurora BioFuels. And we are doing something magic. We are turning wastewater into biodiesel using our proprietary super-algae.
Caspari: The problem with biodiesel today is that it mostly comes from agricultural crops. Agricultural crops are expensive. They have better uses than being burned for fuel. Our method allows us to produce vast quantities of bio-oil cheaply.
Schoen: The pitch is smooth - the guys give have been working on it for months.
Caspari: So that's really what we're doing in a nutshell.
[Questions overlapping each other]
Judge #1: What's your biggest fear about his business?
Judge #2: Why has the traditional algae method not taken off?
Judge #1: Is there a flanking technology out there that can trump you guys?
Schoen: The Aurora team explains to the judges how biofuels, made from plants like algae, fight global warming. While burning fossil fuels releases CO2 that was trapped underground for millennia, the CO2 released from burning biodiesel was just pulled out of the air as the plants grew. So it's simply recycling the same gasses over and over. Judges: Nice job. Thank you.
[Applause]
Schoen: The idea of getting fuel from aquatic plants has existed for decades. But it seems to take an emergency to push America away from petroleum. A generation ago, the United States was facing another energy crisis, brought on by the OPEC oil embargo.
President Carter: The energy crisis is real. It is worldwide. It is a clear and present danger to our nation.
Schoen: That's President Jimmy Carter in 1979. In a major speech of his presidency, Carter outlined ambitious plans to cut oil imports and boost domestic production and energy conservation. He also charted a third path - today we call it "green energy."
President Carter: To give us energy security, I am asking for the most massive peacetime commitment of funds and resources in our nation's history to develop America's own alternative sources of fuel.
Schoen: President Carter invested millions in new government research centers like NREL, the National Renewable Energy Laboratories near Denver. The initiative was strong while oil prices stayed high. But in the early 1990's the cost of crude plunged. So did interest in alternative fuels. Still, government scientists were intrigued by algae. They marveled at its ability to produce up to half its weight in oil and its adaptability as a possible fuel source.
Al Darzins: So you can take this oil and you can actually make a biodiesel out of it, or alternatively you can give it to a petroleum refiner and they can make a so-called green diesel or they can make green gasoline as well.
Schoen: That's Al Darzins, a senior research scientist at NREL. Darzins says algae is so good at producing oil that, in theory, it could satisfy America's demand for jet fuel on just one percent of the land that it would take to do the same thing with soy. But in practice, Darzins says algae faces the same challenge that sunk other alternative energy schemes - cost. Darzins: Can you make alagal oil today? You probably can. Can you make it cost effectively? Probably not with the strains that they currently have.
Schoen: So today, NREL is hoping to create new algae strains through genetic engineering. Matt Caspari says he'll be watching closely - a lot of Aurora's work is based on the government's pioneering research.
Caspari: The research that was done by NREL was critical at the early stages of allowing us to understand, kind of what had been done, what the challenges were, you know, engineering issues. Things that would take a lot of time and experiments to work out.
Schoen: Along with the tremendous advancements made in bioengineering and surging oil prices, today's renewed interest in alternative fuels is driven by a third factor - global warming.
Back at Berkeley, it's evening. The Aurora team is sitting in a packed auditorium, dressed in fashionable black suits.
Engel: Hi Everyone. Welcome to Berkeley.
Caspari: So we're at the finals of the Intel Berkeley Business Plan Competition. And very shortly they're going to be announcing the winners of this competition. We're excited, a little nervous, it should be fun.
Woman: And first place, drum roll.
Engel: Aurora BioFuels. Bravo!
[applause]
Vic: We won. It was great.
Caspari: They gave us a very big check.
Vic: Physically very large.
Caspari: Something you see out of the movies.
Vic: Four feet long.
Man: Are you doing A round, B round what are you looking for?
Schoen: After the victory at the Intel Challenge, investors got a lot more interested in Aurora - including Noventi's James Horn.
James Horn: Winning the competition clearly means a lot about the viability of their idea. So it kind of started the ball rolling for us.
Schoen: Investors were circling. But weeks later Guido Radaelli and the rest of the Aurora team were still working from a small office in the basement of a local hotel.
Caspari: A couple of windows, but you don't get a whole lot of light. Kind of a cubicle environment. [laughter] Caspari: It's glorious.
Vic: It's glorious. It's kind of the garage-type mentality down here.
Caspari: The idea is to not have it too nice so you go out and get a real office with some real money, but in the meantime it.
Vic: It serves its purpose.
Schoen: Matt Caspari is spending most of his time now "doing meetings" with potential investors.
Caspari: We've luckily been in touch with quite a few new venture capital firms over the last few days that have, I guess, heard about our winning this recent prize, so. If they see something's going to come together, they circle.
Vic: Like sharks.
[laughter]
Schoen: Except the sharks aren't biting. What's more, competition is moving in on Aurora's territory. A number of other small California start-ups are working on algae-to-biofuel. Oil giant British Petroleum is investing 500 million dollars to build an alternative energy research center on the nearby Berkeley campus. Elsewhere, Boeing, Virgin Atlantic and the Department of Defense are also studying ways to refine oil from algae. Daunting competition for three guys and their fish tanks.
Caspari: I'm not just worried about little start-ups. I'm worried about big companies too. Because they can pour potentially as much or more money into an idea and put a lot of smart people to work on it. And the one advantage you have over a big company as small entrepreneurial start-up is you can move really fast and make decisions really quickly. So, I feel a huge pressure, um, to get results.
Schoen: Today Matt Caspari and Bert Vic are getting a call from yet another potential funder.
Caspari: We're waiting for a call from a venture capitalist. Um, he's invested in pretty high profile alternative energy companies. So, we're taking this call pretty seriously.
Vic: Does he have the plan?
Caspari: I did send him the plan. I'm pretty sure he's calling me but if I don't get a call in the next few minutes I'm going to check my email and confirm that.
[phone rings]
Caspari: So that seems to be the call. Hello? It's Matt Caspari. How are you?
Venture Capitalist: Good. So we had a call, yeah?
Caspari: Yes. I guess we can tell you a bit about the history of the company and...
Venture Capitalist: (Interrupts) Uh, what I'm most interested in is - well, tell me about how the technology works.
Vic: The, the first piece of technology that we'll be working with enables us to control…
Caspari: I don't see a whole lot of benefit in telling them a lot about what we're doing on the biotech side and our plans. But it's hard to avoid it. Cause, you've got to tell enough detail to differentiate yourself from the other companies that are out there. It's tricky. We don't know who else he's talking to.
[Back to conversation]
Caspari: And using this technology, it will allow us to...
Venture Capitalist: I'm sorry to cut you off here. I just looked at the clock. I need to run of here to another appointment. But to be honest, you guys are probably a little early stage for us.
Caspari: OK.
Venture Capitalist: But if certain things came together we'd be interested in looking at it.
Caspari: OK.
Venture Capitalist: Thanks so much.
Capari: Thank you. Take care.
Venture Capitalist: Bye bye
Caspari: Bye.
[hangs up the phone]
Caspari: So, what do you think, Bert?
Vic: Well, first meetings are always difficult to get a read on people.
Caspari: You know, on the engineering side, he was trying to dig but we didn't give any real detail. I mean we didn't say....
Vic: He was just taking down the information.
Caspari: You don't know. He could have said, "If you guys are doing a deal, I'm in."
Vic: Yeah, I'm hungry.
[laughter]
Schoen: That investor turned Aurora down. Matt decided it was time to get help from an expert. So they turned to Jim Long, a veteran Silicon Valley deal-maker.
Jim Long: This, I think, really comes down to just finding the right investors.
Schoen: As Long explained it, investors run in packs, and Aurora would need to get a contract - or term sheet - with one investor to get others to follow.
Long: You know once you have the term sheet you can use that to go fishing a little bit more. It's like, "Gee whiz, we've got a term sheet. And the lemmings go (makes explosive-like noise). Right?
Caspari: Which is another reason why I said, "Let's get the term sheet and put pressure on them and ..."
Long: It's really getting them to spend the time fast. [snaps fingers] Right? And if it's the right guys, you can really get a long ways in an hour meeting - it's amazing. I think you're going to get this funded. You know, as long as you're not scared of the roller coaster of the startup, right? Which is buckle your seatbelt time and all that.
Schoen: Long's pep-talk energizes the team. Then, after nearly a year of planning, meeting and fundraising, Aurora nets its first investor.
Caspari: You know these guys I think.
Horn: Hello, good to see you.
Schoen: It's James Horn of Noventi. Thanks to Horn's investment, Aurora has moved to spacious, glass enclosed offices in an industrial park near Oakland. Matt Caspari invited Horn to check out their new digs.
Caspari: And as you come out here you can see we've got chemicals coming in every day.
Vic: A lot of the basic stuff that we'll need to conduct the science, like stir plates, stuff to weigh.
Caspari: Scales.
[laughter]
Horn: Aurora was very raw company at the first conversation. It was effectively three guys with a plan on how to create a new energy supply for a growing world. But it was not a stretch to think that we could adapt algae to produce biodiesel. So we made the investment. And it may take longer than we expect, but we are risk-takers by nature and we believe there is a chance to be successful here.
Schoen: How do investors measure success in the emerging green economy? It's clearly about making a profit. But for James Horn saving the world from global warming is a welcome benefit.
Horn: Using algae is effectively carbon neutral, it's not competing for food stocks, it's not competing for scarce water. In many ways it is kind of the ultimate solution for powering our cars. You know, 18 months ago, I never thought I would be investing in an algae company.
Schoen: Horn says Aurora's success depends on its secret, oil-boosting technology developed at Berkeley. Government scientist Al Darzins cautions that Aurora's claims are impressive, but...
Darzins: Have they actually proven that? I suspect it's theoretical at this point and maybe it's some small-scale lab stuff that they've done and they extrapolate and say, "Well, we should be able to produce..." But again, let's take that organism out of the lab and let's see what it does in the environment.
Schoen: Matt Caspari and James Horn say scaling up lab experiments in large, outdoor algae ponds is their biggest challenge. Caspari: You're talking over hundreds if not thousands of acres of algae growth. So it's money and time to scale that up.
Horn: They are trying to do something on a very large scale which hasn't been done before - I mean, there are a number of hurdles that we haven't even addressed yet and that we won't be able to address until we can actually test it.
Smith: Renewable energy is no longer a tale of science fiction or distant dreams. That's obvious. Just look at the billions of dollars flowing into the market to back new, earth-friendly products such as green credit cards and biofuels. Investors James Horn and Marianne Wu say intense competition in this "green" marketplace is no passing fad.
Horn: Energy is the number one driver in the world. And if we can migrate to alternative energy supplies it can be an enormous industry, both in California and worldwide.
Wu: It's a much more fundamental change that we're going through. So, it's not some little blip that it's hot today and tomorrow it's going to be some next hot thing.
Smith: The marketplace can deliver wealth, of course, but it's hardly been eco-friendly until now. One-hundred sixty years ago, the California gold rush produced riches for some people, but hardship for many others - and the gold rush wound down in just a few years. It will be up to contemporary consumers, eco-entrepreneurs and their shareholders to see that today's green rush evolves from an economic frenzy to a fundamental, planet-saving change.
I'm Stephen Smith. You've been listening to Green Rush, a documentary from American RadioWorks. Our program was produced by Claire Schoen, with Michael Montgomery and editor, Catherine Winter. We had help from Ellen Guettler, Chris Chambers and Anna Sussman. The American RadioWorks team included Ochen Kaylan, Chris Farrell, Laurie Stern, Craig Thorson, Tom Mudge, Denise Nichols, and Misha Quill. At American Public Media: Chris Kohtz and Cory Busse.
Green Rush was supported in part by the Kendeda Sustainability Fund of the Tides Foundation and the Comer Science and Education Foundation. Major funding for American RadioWorks comes from the Corporation for Public Broadcasting.
To learn more about the new generation of biofuels, visit our website, AmericanRadioWorks.org. There, you can download this and other programs and sign up for our podcast. That's at AmericanRadioWorks.org.
Stephen Smith: From American Public Media, this is an American RadioWorks documentary.
Chris Erikson: Green 2.0. Greenside. Triple Green. Green Silk. Ooohhhh smooth.
Smith: American businesses are going green.
David Plasick: There's going to be a huge scramble in this marketplace for ecological something - anything, really, okay?
Smith: From credit cards to biofuels to solar energy. Everybody's making claims.
Plasick: There's going to be a lot of false claims. There's going to be a lot of sincere people. Perhaps some insincere people along the way.
Marianne Wu: It's not some sort of little blip that this is hot today. And you know, tomorrow it's going to be some next hot thing.
Smith: It's a Green Rush, from American RadioWorks.
Smith: In 1847, a remote hamlet in northern California was renamed San Francisco. Soon after, prospectors discovered gold in the nearby Sierra Nevada foothills. A mighty gold rush was on as waves of men and machines surged into the region to carve riches out of the Earth. Today's there's a different kind of frenzy underway. Think of this one as a green rush, and, like the gold rush, legions of the hopeful are lighting out for northern California to stake a claim.
[CleanTech Conference]
Smith: If the green rush has a boomtown, maybe it's also here, in San Francisco, at the annual CleanTech Venture Conference. It's a gathering of alternative technology companies and investors. Each year the CleanTech rendezvous gets bigger - packing a vast meeting hall with investors who control more than a trillion dollars. Chasing these deep-pocketed funders are eager entrepreneurs.
Exhibitors: (Montage of voices)
My company is Global ID Group.
I'm with Best Energies
Green Catalyst
E-3 BioFuels
Flex Energy
I'm with Audura Technologies.
Smith: And they're here for one reason:
Exhibitors: (Montage of voices)
We're raising capital.
There's a lot of venture capitalists here.
We're looking for some capital to build our first manufacturing plant here in the United States.
We need to raise money to make this a mass market opportunity.
We have brains, we have technology and if we add money, we will make money and we will clean the environment in ways that haven't been done before.
Smith: The investors are courting "venture capitalists" - people who bankroll companies with big risks in the hope of making a big profit in return.
James Horn: I think it's pretty clear that we're entering a new world.
Smith: James Horn, is with a venture capital firm called "Noventi," which focuses on clean-tech start-up companies.
Horn: I mean it's a $6 trillion market, the energy business. It's such a vast market that there is really is sufficient potential to justify the investments that are going into the market right now. And again, we are very early on in this process.
Smith: A process some hope will help save the planet from catastrophic climate change. For the world to break its addiction to fuels that suffocate our skies - it's argued - the profit motive is an essential weapon. In the 1980s and 90s, venture capitalists were the risk-taking, financial powerhouse behind the Internet boom. Now they see green tech as the next big opportunity. And as in the Internet era, new companies are popping up in every garage - all looking for investors to back them. Producer Claire Schoen gives us a rare look inside one small start-up company with a secret technology it hopes will strike a vein in the green rush.
Claire Schoen: Guido Radaelli's rented house in the Berkeley Hills enjoys sweeping vistas of the San Francisco Bay. But the sparse furnishings hint at his status as a recent grad student. One peculiar addition to the decor is found in a loft overlooking the living room.
Guido Radealli: So we go upstairs where we grow algae. We are actually cultivating algae in closed fish tanks.
Schoen: Radaelli leads us to four ordinary fish tanks filled with a thin, light green liquid. When we first met last fall, these four tanks were the entire laboratories for Aurora BioFuels. Aurora is the brainchild of three guys fresh out of grad school at the University of California at Berkeley. Matt Caspari is an M.B.A. Bert Vic is a Ph.D. Candidate in bio-chemistry and Guido Radaelli studied chemical engineering and business. The three came together at school over a revolutionary idea: algae as a source for fuel.
Schoen: So, uh, it looks like a bunch of green water to me.
[laughter]
Bert Vic: It's a microorganism; it's a micro-algae, so it's not like seaweed or something like that - or kelp. You don't really see anything in the water except the color of the water changing. You can see them under a microscope.
Matt Caspari: Uh, you need to harvest the algae out of that water. And then we'll actually extract oil from it. So, you can get the algae out of the water and you can get the oil out of the algae. We've done it. We've done it. So, we know that much at least (chuckle). That's been proven.
Schoen: Helping fuel the world with humble algae oil is not as farfetched as it may sound. A hundred years ago, some of the first diesel engines ran on peanut oil. And today, fuel made from soy and corn is a booming business. But those crops have a problem - they depend on valuable farmland and precious fresh water. Algae, on the other hand, thrives in wastewater. All it needs to grow is sunlight and air.
Vic: The actual growing of algae is not anything that impressive. It's kinda like - its just pond scum, really,
[laughter]
Caspari: Tell a little bit more about your love of the algae.
Vic: It's a love/hate relationship.
Radealli: It's a challenging relationship because I have to come here every morning, every night, take samples, check the pH, check the temperature, check the nutrient level and keep them growing as you do with your flowers.
Caspari: It's like his child.
Radealli: Yeah, it's true.
Vic: They are linked telekinetically.
[laughter]
Vic: The salvation of the world is in those tanks, right there. It may not look impressive, but it is.
Schoen: The Aurora team claims to have developed a technology that dramatically boosts algae's oil producing capacity to 100 times that of soy and other crops. They call it "super algae." It's a very profitable calculation - especially considering the amount of diesel burned by American trucks and tractors.
Caspari: We consume 60 billion gallons of diesel fuel every year, so if our technology does what we are claiming it can do, it's a major opportunity and it's attractive for venture capital investors and we decided to start thinking about, "Could there be a business for this?"
Vic: And I think we feel that this is the type of business that has a double bottom line, not only a very healthy, from a financial standpoint, but also from a social and environmental point of view as well.
Schoen: So, just add money?
Caspari: The odds aren't with you. The odds aren't with you to get venture financing. Once you get venture financing, the odds aren't with you that it will be, you know, at all successful. And even the successful ones, you know, you hear the company's sold for 100 million dollars. Well, how much do the entrepreneurs really own?
Vic: Founders only get a small portion.
Caspari: Not a lot. You know, it's kind of crazy, but you can't do this for the money. Go be an investment banker and you're much more likely to make good money. It just can't be the motivating factor.
Vic: You have to enjoy the process.
Schoen: There's a lot of money flowing into alternative energy - $70 billion in 2006. But as with any boom there's also fierce competition. Aurora needs to get its name up in lights so investors take notice. Six months after the company's founding, Aurora enters the Intel Challenge, the world cup of business plan competitions. We're at Berkeley's Haas School of Business where this year's Challenge draws competitors from around the globe.
[Registration table]
Coordinator 1: So, in there are their name tags.
Coordinator 2: Yeah, Egypt, Jordan, no?
Coordinator 1: And then um, hello!
Competitor: Russians! Russians are coming. Great to see you at last.
Coordinator 1: Yes!
Schoen: Aurora is competing.
Vic: I think we'll win. [laughter] We have to go in with confidence.
Coordinator: Marvelous. Lunch is right around the corner.
Caspari: There's a prize of $25,000 and that helps. But, um, a strong lead with a venture capitalist is probably more valuable than that.
Schoen: Investors from Silicon Valley's leading venture capital firms are here to judge the competition - and also to scout out possible deals. One of the judges today is Marianne Wu of Mohr Davidow Ventures. Wu has already been talking about a deal with Aurora. Wu: We have certainly had conversations with Aurora. Energy is the fundamental driver behind daily activity, behind industrial growth, behind our commercial infrastructure.
Schoen: It's time for Aurora to pitch its project to Wu and the other judges. The team moves from the bustling hallway to a small, wood-paneled meeting room.
Radealli: We are Aurora BioFuels. And we are doing something magic. We are turning wastewater into biodiesel using our proprietary super-algae.
Caspari: The problem with biodiesel today is that it mostly comes from agricultural crops. Agricultural crops are expensive. They have better uses than being burned for fuel. Our method allows us to produce vast quantities of bio-oil cheaply.
Schoen: The pitch is smooth - the guys give have been working on it for months.
Caspari: So that's really what we're doing in a nutshell.
[Questions overlapping each other]
Judge #1: What's your biggest fear about his business?
Judge #2: Why has the traditional algae method not taken off?
Judge #1: Is there a flanking technology out there that can trump you guys?
Schoen: The Aurora team explains to the judges how biofuels, made from plants like algae, fight global warming. While burning fossil fuels releases CO2 that was trapped underground for millennia, the CO2 released from burning biodiesel was just pulled out of the air as the plants grew. So it's simply recycling the same gasses over and over. Judges: Nice job. Thank you.
[Applause]
Schoen: The idea of getting fuel from aquatic plants has existed for decades. But it seems to take an emergency to push America away from petroleum. A generation ago, the United States was facing another energy crisis, brought on by the OPEC oil embargo.
President Carter: The energy crisis is real. It is worldwide. It is a clear and present danger to our nation.
Schoen: That's President Jimmy Carter in 1979. In a major speech of his presidency, Carter outlined ambitious plans to cut oil imports and boost domestic production and energy conservation. He also charted a third path - today we call it "green energy."
President Carter: To give us energy security, I am asking for the most massive peacetime commitment of funds and resources in our nation's history to develop America's own alternative sources of fuel.
Schoen: President Carter invested millions in new government research centers like NREL, the National Renewable Energy Laboratories near Denver. The initiative was strong while oil prices stayed high. But in the early 1990's the cost of crude plunged. So did interest in alternative fuels. Still, government scientists were intrigued by algae. They marveled at its ability to produce up to half its weight in oil and its adaptability as a possible fuel source.
Al Darzins: So you can take this oil and you can actually make a biodiesel out of it, or alternatively you can give it to a petroleum refiner and they can make a so-called green diesel or they can make green gasoline as well.
Schoen: That's Al Darzins, a senior research scientist at NREL. Darzins says algae is so good at producing oil that, in theory, it could satisfy America's demand for jet fuel on just one percent of the land that it would take to do the same thing with soy. But in practice, Darzins says algae faces the same challenge that sunk other alternative energy schemes - cost. Darzins: Can you make alagal oil today? You probably can. Can you make it cost effectively? Probably not with the strains that they currently have.
Schoen: So today, NREL is hoping to create new algae strains through genetic engineering. Matt Caspari says he'll be watching closely - a lot of Aurora's work is based on the government's pioneering research.
Caspari: The research that was done by NREL was critical at the early stages of allowing us to understand, kind of what had been done, what the challenges were, you know, engineering issues. Things that would take a lot of time and experiments to work out.
Schoen: Along with the tremendous advancements made in bioengineering and surging oil prices, today's renewed interest in alternative fuels is driven by a third factor - global warming.
Back at Berkeley, it's evening. The Aurora team is sitting in a packed auditorium, dressed in fashionable black suits.
Engel: Hi Everyone. Welcome to Berkeley.
Caspari: So we're at the finals of the Intel Berkeley Business Plan Competition. And very shortly they're going to be announcing the winners of this competition. We're excited, a little nervous, it should be fun.
Woman: And first place, drum roll.
Engel: Aurora BioFuels. Bravo!
[applause]
Vic: We won. It was great.
Caspari: They gave us a very big check.
Vic: Physically very large.
Caspari: Something you see out of the movies.
Vic: Four feet long.
Man: Are you doing A round, B round what are you looking for?
Schoen: After the victory at the Intel Challenge, investors got a lot more interested in Aurora - including Noventi's James Horn.
James Horn: Winning the competition clearly means a lot about the viability of their idea. So it kind of started the ball rolling for us.
Schoen: Investors were circling. But weeks later Guido Radaelli and the rest of the Aurora team were still working from a small office in the basement of a local hotel.
Caspari: A couple of windows, but you don't get a whole lot of light. Kind of a cubicle environment. [laughter] Caspari: It's glorious.
Vic: It's glorious. It's kind of the garage-type mentality down here.
Caspari: The idea is to not have it too nice so you go out and get a real office with some real money, but in the meantime it.
Vic: It serves its purpose.
Schoen: Matt Caspari is spending most of his time now "doing meetings" with potential investors.
Caspari: We've luckily been in touch with quite a few new venture capital firms over the last few days that have, I guess, heard about our winning this recent prize, so. If they see something's going to come together, they circle.
Vic: Like sharks.
[laughter]
Schoen: Except the sharks aren't biting. What's more, competition is moving in on Aurora's territory. A number of other small California start-ups are working on algae-to-biofuel. Oil giant British Petroleum is investing 500 million dollars to build an alternative energy research center on the nearby Berkeley campus. Elsewhere, Boeing, Virgin Atlantic and the Department of Defense are also studying ways to refine oil from algae. Daunting competition for three guys and their fish tanks.
Caspari: I'm not just worried about little start-ups. I'm worried about big companies too. Because they can pour potentially as much or more money into an idea and put a lot of smart people to work on it. And the one advantage you have over a big company as small entrepreneurial start-up is you can move really fast and make decisions really quickly. So, I feel a huge pressure, um, to get results.
Schoen: Today Matt Caspari and Bert Vic are getting a call from yet another potential funder.
Caspari: We're waiting for a call from a venture capitalist. Um, he's invested in pretty high profile alternative energy companies. So, we're taking this call pretty seriously.
Vic: Does he have the plan?
Caspari: I did send him the plan. I'm pretty sure he's calling me but if I don't get a call in the next few minutes I'm going to check my email and confirm that.
[phone rings]
Caspari: So that seems to be the call. Hello? It's Matt Caspari. How are you?
Venture Capitalist: Good. So we had a call, yeah?
Caspari: Yes. I guess we can tell you a bit about the history of the company and...
Venture Capitalist: (Interrupts) Uh, what I'm most interested in is - well, tell me about how the technology works.
Vic: The, the first piece of technology that we'll be working with enables us to control…
Caspari: I don't see a whole lot of benefit in telling them a lot about what we're doing on the biotech side and our plans. But it's hard to avoid it. Cause, you've got to tell enough detail to differentiate yourself from the other companies that are out there. It's tricky. We don't know who else he's talking to.
[Back to conversation]
Caspari: And using this technology, it will allow us to...
Venture Capitalist: I'm sorry to cut you off here. I just looked at the clock. I need to run of here to another appointment. But to be honest, you guys are probably a little early stage for us.
Caspari: OK.
Venture Capitalist: But if certain things came together we'd be interested in looking at it.
Caspari: OK.
Venture Capitalist: Thanks so much.
Capari: Thank you. Take care.
Venture Capitalist: Bye bye
Caspari: Bye.
[hangs up the phone]
Caspari: So, what do you think, Bert?
Vic: Well, first meetings are always difficult to get a read on people.
Caspari: You know, on the engineering side, he was trying to dig but we didn't give any real detail. I mean we didn't say....
Vic: He was just taking down the information.
Caspari: You don't know. He could have said, "If you guys are doing a deal, I'm in."
Vic: Yeah, I'm hungry.
[laughter]
Schoen: That investor turned Aurora down. Matt decided it was time to get help from an expert. So they turned to Jim Long, a veteran Silicon Valley deal-maker.
Jim Long: This, I think, really comes down to just finding the right investors.
Schoen: As Long explained it, investors run in packs, and Aurora would need to get a contract - or term sheet - with one investor to get others to follow.
Long: You know once you have the term sheet you can use that to go fishing a little bit more. It's like, "Gee whiz, we've got a term sheet. And the lemmings go (makes explosive-like noise). Right?
Caspari: Which is another reason why I said, "Let's get the term sheet and put pressure on them and ..."
Long: It's really getting them to spend the time fast. [snaps fingers] Right? And if it's the right guys, you can really get a long ways in an hour meeting - it's amazing. I think you're going to get this funded. You know, as long as you're not scared of the roller coaster of the startup, right? Which is buckle your seatbelt time and all that.
Schoen: Long's pep-talk energizes the team. Then, after nearly a year of planning, meeting and fundraising, Aurora nets its first investor.
Caspari: You know these guys I think.
Horn: Hello, good to see you.
Schoen: It's James Horn of Noventi. Thanks to Horn's investment, Aurora has moved to spacious, glass enclosed offices in an industrial park near Oakland. Matt Caspari invited Horn to check out their new digs.
Caspari: And as you come out here you can see we've got chemicals coming in every day.
Vic: A lot of the basic stuff that we'll need to conduct the science, like stir plates, stuff to weigh.
Caspari: Scales.
[laughter]
Horn: Aurora was very raw company at the first conversation. It was effectively three guys with a plan on how to create a new energy supply for a growing world. But it was not a stretch to think that we could adapt algae to produce biodiesel. So we made the investment. And it may take longer than we expect, but we are risk-takers by nature and we believe there is a chance to be successful here.
Schoen: How do investors measure success in the emerging green economy? It's clearly about making a profit. But for James Horn saving the world from global warming is a welcome benefit.
Horn: Using algae is effectively carbon neutral, it's not competing for food stocks, it's not competing for scarce water. In many ways it is kind of the ultimate solution for powering our cars. You know, 18 months ago, I never thought I would be investing in an algae company.
Schoen: Horn says Aurora's success depends on its secret, oil-boosting technology developed at Berkeley. Government scientist Al Darzins cautions that Aurora's claims are impressive, but...
Darzins: Have they actually proven that? I suspect it's theoretical at this point and maybe it's some small-scale lab stuff that they've done and they extrapolate and say, "Well, we should be able to produce..." But again, let's take that organism out of the lab and let's see what it does in the environment.
Schoen: Matt Caspari and James Horn say scaling up lab experiments in large, outdoor algae ponds is their biggest challenge. Caspari: You're talking over hundreds if not thousands of acres of algae growth. So it's money and time to scale that up.
Horn: They are trying to do something on a very large scale which hasn't been done before - I mean, there are a number of hurdles that we haven't even addressed yet and that we won't be able to address until we can actually test it.
Smith: Renewable energy is no longer a tale of science fiction or distant dreams. That's obvious. Just look at the billions of dollars flowing into the market to back new, earth-friendly products such as green credit cards and biofuels. Investors James Horn and Marianne Wu say intense competition in this "green" marketplace is no passing fad.
Horn: Energy is the number one driver in the world. And if we can migrate to alternative energy supplies it can be an enormous industry, both in California and worldwide.
Wu: It's a much more fundamental change that we're going through. So, it's not some little blip that it's hot today and tomorrow it's going to be some next hot thing.
Smith: The marketplace can deliver wealth, of course, but it's hardly been eco-friendly until now. One-hundred sixty years ago, the California gold rush produced riches for some people, but hardship for many others - and the gold rush wound down in just a few years. It will be up to contemporary consumers, eco-entrepreneurs and their shareholders to see that today's green rush evolves from an economic frenzy to a fundamental, planet-saving change.
I'm Stephen Smith. You've been listening to Green Rush, a documentary from American RadioWorks. Our program was produced by Claire Schoen, with Michael Montgomery and editor, Catherine Winter. We had help from Ellen Guettler, Chris Chambers and Anna Sussman. The American RadioWorks team included Ochen Kaylan, Chris Farrell, Laurie Stern, Craig Thorson, Tom Mudge, Denise Nichols, and Misha Quill. At American Public Media: Chris Kohtz and Cory Busse.
Green Rush was supported in part by the Kendeda Sustainability Fund of the Tides Foundation and the Comer Science and Education Foundation. Major funding for American RadioWorks comes from the Corporation for Public Broadcasting.
To learn more about the new generation of biofuels, visit our website, AmericanRadioWorks.org. There, you can download this and other programs and sign up for our podcast. That's at AmericanRadioWorks.org.
