The Year of the Biofuel IPO: The Good, Bad and Ugly

More than a half dozen U.S. biofuel companies have filed IPOs in the past 15 months despite problems -- no revenue or cash -- that are typically vetted before taking a business public. Most of these next-gen biofuels companies -- several backed by venture capitalist Vinod Khosla's fund Khosla Ventures -- are at the early-stage and have yet to turn a profit. Add a competitive industry reliant on government support, and it's easy to bet against their survival.

Some, however, are more promising than others. Here's quick snapshot of companies that filed IPOs in 2011, including Renewable Energy Group, Ceres, KiOR and Solazyme.

Renewable Energy Group
The skinny: The Iowa-based biodiesel company is the latest to file an IPO. The company has been around since 1996. But it's been particularly active lately, snapping up four of its six facilities since February 2010.

The good: It's a leader in the industry, which gives it a distinct competitive advantage.

• Last year, REG sold nearly 68 million gallons of biodiesel, or about 22 percent of U.S. biodiesel production.
• The company smartly moved away from expensive and highly volatile feedstocks like soybean oil and now produces biodiesel using cheaper raw materials like inedible animal fat, used cooking oil and inedible corn oil.
• Its revenues have risen steadily from $85.45 million in 2008 to $216.46 million in 2010. And demand pushed sales for the first quarter to $100.1 million compared just $33 million in the same period last year.

• REG relies heavily on one customer, Pilot Travel Centers, for its revenues. At the moment, REG's size and biodiesel capacity provide some competitive protection, but that could change.

• Its working capital deficit of $3.5 million in 2010 and $1.66 million in the first quarter of 2011. In short, the company is spending more than it's bringing in.
• REG does have enough cash ($4.36 million in 1Q) to cover some costs. But a a $23.2 million loan held by one its subsidiaries that matures in November, making future financing imperative.

The good: It's a niche business that is critically important for the entire biofuels industry.

• Without companies like Ceres, the industry will be forced to rely on controversial food crops, waste residue and algae, as Biofuels Digest noted.

• It faces competition from Big Ag companies including Dow Chemical, Monsanto and DuPont.
• Most of its revenue comes from government grants.
• Its dependent on sugar prices staying low relative to the price of ethanol

• The company has reported net losses each year since its inception except for 2003, 2005 and 2006.
• It has an accumulated deficit of $187.6 million
• Sales are practically nonexistent. In the first six months of 2011 fiscal year, it reported $9,000 in sales.

The good: Its product can be used in existing refineries and distribution systems, eliminating a major challenge of other fuel alternatives.

• And it already has a customer -- Hunt Refining Co.

• But it sure is spending quite a bit on R&D. It spent $22 million in 2010 and $7.2 million in the first quarter of 2011, a 65 percent increase in R&D spending compared to the same period last year.
• The company says it will cost $1 billion to build the five plants it needs to reach its production goals. Earlier this year, KiOR announced it was seeking a $1 billion loan guarantee from the Energy Department.

• Last year, the company lost $45.9 million. It lost $13.4 million in the first quarter of 2011.

The good: It's actually making money, has customers and cash!

• Dow Chemical has agreed to buy up to 20 million gallons of its oils in 2013 and Qantas will purchase a minimum of 200 liters of jet fuel a year. It also has a research contract with the U.S. Navy to produce up to 550,000 liters of a renewable distillate fuel.
• It has high-profile backers that will likely use its product, including personal care company Unilever and Sir Richard Branson.
• It's revenues have grown from $923,000 in 2008 to nearly $38 million last year.
• It has nearly $29 million in cash and $65 million in working capital.

The ugly: Solazyme is far more successful than the other companies, in terms of revenue, but it's still reporting losses.

• It reported $16.3 million in losses last year and has already logged $7.3 million in losses in the first quarter of 2011.
• It has an accumulated deficit of $60.2 million
• And it's microalgae is reliant on certain feedstocks (which can have price volatility) like sugarcane-based sucrose.

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