Algae Financing For NAA Conference Sept 17 18, 2009

ALGAE FINANCINGAND RISK FINANCEM AR K J . H AN S O N | M ARY G . S E N N E SS t o e l R i v e s L L P | 3 3 S o u t h S i x t h S t r e e tS u i t e 4 2 0 0 | M i n n e a p o l i s , M N | 5 5 4 0 2w w w . s t o e l . c o m | m j h a n s o n @ s t o e l . c o m

NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

A L G A E F I N A N C I N G

• Financing structures and risk assessment.

• Many algae projects at various stages ofdevelopment. Projects don’t get built withoutfinancing. These projects require unique financingthat will likely be a blend of equity (invested cash

Overview

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that will likely be a blend of equity (invested cashequity, government assistance) and debt includinggovernment guaranteed debt.

• First stage is funding to carry the project through debtand equity financing. This initial funding issometimes referred to as “seed” money. Because ofthe early stage risk, seed money frequently carriespremiums to the general equity investment.


Use of Seed Money1. Develop bankable business plan.

• Necessary to develop costs of project as well asproject risks.

• Assess costs to overcome mistakes (repopulate, newwater source, new algae strains, new harvesting orextraction technology, etc.).


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extraction technology, etc.).

2. Acquire site options.

3. Fund advance project permitting (permits with longerapplication and approval times).

4. Fund consultant and professional fees through projectfinancing.

5. Development of financial model with sensitivity to riskfactors.

L G A E B I O F U E L S

• Raising money is regulated by federal and statesecurities laws.

• For seed money receipts of $2 million to $4 millioncommon structures are private placements underRegulation D of the Securities Act:

Raising Seed Money


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Regulation D of the Securities Act:

– Exemption for limited offers and sales notexceeding a threshold dollar amount

– Compliance with state blue sky rules


• No public disclosure or solicitation

– E.g. no advertisements, articles, or notices of theinvestment opportunity

– Limit invitations to invest to persons with whomthe company has a pre-existing relationship

Private Placement


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the company has a pre-existing relationship

• Accredited / Non-Accredited Investors

– Accredited investor definition – income/net worthor status with company

– Depending on type of private placement, mayhave a limited number of non-accredited investors


• Parameters of Debt Financing

– Initial discussion of debt/equity ratios

– Project size and total funds required

• Reliance on government incentives

Debt Financing


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– Some government loan guarantees will require apersonal guarantee

• Required equity (investment)

– Sources: strategic partners, large private equitysources, institutional investors

– Adequacy of working capital


• Loan guarantee programs through the USDA andDOE

• Government Grants

– State Energy Program

Government Programs


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– Bioenergy Program for Advanced Biofuels

• Coordinating Government Programs with Financing

– Debt, debt enhancement, grant (equity) timing(post close, investment enhancement), etc.


Sophisticated investors and lenders will spend as muchtime on risk assessment as is spent on the financingdecision.

Risk Assessment


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• Who are the owners that are managing the projectdevelopment?

• Who will be the board?

• Management’s track record.

Management Risk


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• Are they replaceable or unique for this investment(e.g., technology inventor)?

• Management of operations balance of personnel.


• From which governmental entities will consent andpermits be required?

• Stable or changing regulations.

• Government support for the project (infrastructure,funding, etc.).

Regulatory Risk


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funding, etc.).


• Sustainability of algae strain, tests on specieslongevity and confined growth systems.

• Issues related to release or discharge of algae fromfacility.

• Susceptibility to viruses and other diseases; cost to

Operational Risk


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• Susceptibility to viruses and other diseases; cost torepopulate.

• Viability of water quality in confined systems; nutrientreplenishment, chemical accumulation or depletion.

• Power interruption risk.

• Weather risk.


• Is technology utilized expensive? Replaceable?

• Viability of project if competitors use bettertechnology.

• Patent and license technology risk.

Technology Risk


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• Algae growth and algae oil production capacity.

• Storage facilities (when is company forced to marketvs. storage).

• Long-term product markets and marketing contracts.

Processing and Marketing Risk


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• Dependence on oil and gasoline pricing.

• Government incentives vs. market pricing.


Summary

• Evaluate priorities, technology, time, money.

• Business plan and financing model should evaluate andaddress priorities and risk.

• Proper risk evaluation and disclosure protects projectdeveloper and investor.


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developer and investor.

Documents

Algae Financing For NAA Conference Sept 17 18, 2009