Attorney outlines ways to attract biomass project investors

By Erin Voegele | November 04, 2011

Attracting investment is a key component of getting any biomass-related project off the ground. During the 2011 Southeast Biomass Conference & Trade Show in Atlanta this week, Kate Bechen, an attorney with Michael Best & Friedrich LLP’s Energy & Sustainability Industry Group, outlined what investors and creditors look for when considering investment in biomass projects.

According to Bechen, investors are looking for five main components when reviewing investment opportunities in biomass. They want to see a strong, polished business plan, she said. They also want accurate and credible revenue projections. A reliable source of feedstock is also imperative, as is an effective technology and good project site.

Regarding technology, Bechen noted that traditional lenders and those representing private equity are generally attracted to different phases of technology development. Typical lenders are more risk adverse and are looking for opportunities in more tried and true technologies. However, those in the private equity community are often more open to investing in cutting-edge technologies that have not been proven at the commercial scale.

The way businesses represent their technologies is also important, Bechen said. “What I see with a lot of our … entrepreneurs is that they believe in their technology, and they love their technology, but they are not objective enough to be able to sell it to skeptics,” she continued. “you have to go into every meeting knowing you have a bit of an uphill battle to make a case why your technology works and is, perhaps, better than others on the market.”

 Bechen also noted that there are still market difficulties associated with project financing in the current market. “Generally, the lending market is very tight,” she said. However, she notes there has been some activity with more established project developers in the biomass industry. This is because it is often much easier to make the case for a second round of funding.

During her presentation, Bechen also noted the primary differences between financial investors and strategic investors. “Financial investors are obviously in it for the return,” she said. “Strategic investors are obviously also in it for the return, but typically have some other reason that they are interested in the project. For example, you might have a situation where a downstream customer actually is an investor in a new startup because they want either preferential access to the new technology that the startup is developing, or they want some kind of exclusive supply agreement. So, there is more in the game than just the return.” According to Bechen, strategic investors have become more common recently.

Bechen’s presentation was part of a panel, titled “Biomass Procurement and Supply Chain Management.” Additional speakers in the panel included Bob Synk, manager of projects at the Parton Group; Eric Kingsley, vice president of Innovative Natural Resources Solutions LLC; and Timothy Taylor, partner with Stoel Rives LLP. David Waechter, founder of Whistle Pig Enterprises LLC, moderated the session.