The Risk of Strategic Partners

By Luke Geiver | September 27, 2012

As if project finance for biobased installations wasn’t already hard enough. In an industry where popular finance methods include traditional debt financing, government-backed loan guarantees, or in some cases, the utilization of funding from a strategic partner, announcements over the last few months have shown that at least one of those financing methods (strategic partner funding) can be rewarding, risky or capable of ruining a company. 

First, there is, or now was, Terrabon Inc. Founded in 1995, the company was linked via strategic partnership with Valero Energy Corp., Waste Management Inc., and a few others. Earlier this month, the company filed for Chapter 7 bankruptcy due in part to Waste Management’s decision to pull funding for the company.

Next, look at Qteros Inc. out of Massachusetts. This month the cellulosic ethanol developer’s equipment was auctioned off (the company is no more). The company was linked and backed by big name companies like Valero Energy Corp. and others.

Then, there is Codexis (enzymes) and Iogen Inc. (cellulosic ethanol), two bioenergy-linked companies that were effected by Royal Dutch Shell, a strategic investor and partner to both. Iogen Inc. has scaled back, calling off plans to build a cellulosic ethanol facility, and Codexis has taken similar steps, laying off employees while adjusting for the tough biobased road ahead without the backing of Shell.

Earlier this year, many industry experts I spoke with felt the trend in the industry would involve new strategic partners helping move the industry forward, while existing partners would take on an even larger role. As the last few months have shown, that trend, although very present, is not risk-proof, and sometimes, big-name backing offers no reward at all.