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Khosla Ventures: Investing in Ethanol
September 19, 2007
Chris Abad Mikhail Khleblaov
Shadi Sedghi An-Chi Tsou
http://www.hybridfuels.ca/
Khosla Ventures Background
• Company Focus– Significant/innovative technologies– Seed to late-stage investments– Breaking up monopolies- large markets– Investment of general partners’ capital
• Interest in Ethanol– 2006 production facilities: $1.50-2/gal to
$10/gal– Social interest
Comparative Risks of Fuel Technologies
10
RISK: Oil vs. Hydrogen vs. Ethanol
LowLow-High?Very HighEnvironmental Cost
LowVery HighVery LowImplementation Risk
LowHighVery HighInterest Group Opposition
LowHigh?Political Difficulty
LowVery highNATime to Impact
LowVery HighVery LowTechnology Risk
LowVery HighLowInfrastructure Cost
LowHigh?Med=HighCost per Mile
LowLowHighEnergy Security Risk
BiofuelsHydrogenOil
Source: www.koshlaventures.com
CO2 emissions from alternative fuels
FT
(C
oa
l)
Ga
solin
e
Ga
solin
e (
Ta
r S
an
ds)
FT
(C
oa
l CC
D)
Eth
an
ol (
Co
rn C
oa
l)
Eth
an
ol (
To
da
y)
Eth
an
ol (
Co
rn N
G)
Eth
an
ol (
Co
rn W
et
Gra
ins)
Eth
an
ol (
Co
rn N
o T
ill)
Eth
an
ol (
Co
rn B
iom
ass
)
Eth
an
ol (
Ce
llulo
se)
Eth
an
ol (
Co
rn B
iom
ass
CC
D)
Eth
an
ol (
Ce
llulo
se C
CD
)
-10
0
10
20
30
40
50
60
1
lbs
CO
2/g
al
ga
so
lin
e e
qu
iva
len
t
FT (Coal)
Gasoline (Tar Sands)
FT (Coal CCD)
Gasoline
Ethanol (Corn Coal)
Ethanol (Today)
Ethanol (Corn NG)
Ethanol (Corn Wet Grains)
Ethanol (Corn No-Till)
Ethanol (Corn Biomass)
Ethanol (Cellulose)
Ethanol (Corn Biomass CCD)
Ethanol (Cellulose CCD)
Fig: Carbon Emissions per mile driven of various fuels (Source: NRDC)
CO2 Emissions from Alternative Fuels
Ethanol
• Commonly produced by fermentation, through yeast
• Yield sugar extraction
• Advantages over gasoline– Alleviates shortages– More cost effective– Environment-friendly
http://www.indycar.com/tech/images/ethanol.jpg
Value Chain of Ethanol Production
Raw MaterialProduction
EthanolManufacturing
Marketing,Sales &
Distribution
Retail
Corn
Sugar
Plant Cells
Corn-milling
Fermentation
CelluloseBreakdown
Transportation
Storage
EthanolByproducts
Auto Manufacturers
Political Ties
Non-market Environment
Where should Khosla invest?
Creation of Ethanol• High source of
significant technology– Corn fractionation– Enzyme-based process– Cellulose and
Hydrolysis
• Large Market Opportunity
– Gasoline prices increase
– Demand for gas is steady
Where should Khosla invest?
Getting Raw Materials• Switch Grass
– No fertilization; 12 feet tall– Bransby - 100 gallons per ton– Skeptics – 96 gallons per ton– Potential for improving cellulose
breakdown process
• Corn– Abundant source in the US; 43%
worldwide– Much research in the break down of Corn
Porter’s 5 Forces
Rivalry- Oil companies
Barriers to Entry- Government tariffs
- Need for large volumes- Large capital requirement
Threat of Substitutes-Products not in food chain- Cheaper options (ligno cellulosic)
Supplier Power- Raw material production
- Food industry competition
Buyer Power-Demand for alt. energy
- Vertical integration threat- High bargaining power
What ventures should Khosla avoid?
• Distribution and transportation– American politics
• Tarrifs: $0.54/gallon till 2009– http://www.renewableenergyaccess.com/rea/
news/story?id=46863
• Protected American ethanol production
– Opponents• Lower dependence on gas• Ethanol production in Brazil
How to Invest
• Kieretsu-style, parallel investments
• Competitive– Energy sources (yeast
variants, enzymes)– Ethanol creation (corn
milling, feedstocks, sugar, etc.)
• Comparative– U.S. corn production
http://www.greentechnolog.com/ethanole85/
Value-Chain Coordination
• Clusters– Lower
transportation costs– Improve
communication
• Form key alliances– Farmers– Auto manufacturers
http://www.usfarmsinc.com/images/us_ethanol_prod06_zoom.GIF
Innovation• Ethanol Production
– Energy sources– Corn processing/milling
techniques– Corn production– Cellulose production
• Viability for investment– Energy sources- scientific
breakthroughs, gov’t investment
http://www.greentechnolog.com/2006/04/switchgrass_biofuel_green_ener.html
Future of Ethanol Technologies
Source: www.koshlaventures.com
The Future of Ethanol
• Potential as additive/alternative to gasoline– Flexible Fuel Vehicles
• Highly complex political, economical concerns– Capital– Environmental
http://blog.wired.com/cars/images/2007/06/20/ethanol_fuel_pump.jpg
Thank you!
Any questions?
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