Scaling Up Without Wall Street

FROM THE OCTOBER ISSUE: Alliance Bio-Products’ chairman provides a detailed account of hurdles cleared and decisions made in the development of the company’s cellulose-to-sugar process.
By Daniel de Liege | September 14, 2017

Securing funding for new technologies can be extremely difficult: There’s no guarantee of a profitable end result; the landscape is constantly changing; and new advancements could quickly scrap years of research and millions of dollars invested. Biofuels and cellulosic ethanol can be particularly challenging, as there are advancements in different approaches every day. But the space still faces issues with creating scalable technology that can produce biofuels at a cost affordable to both the producer and the consumer.

Alliance BioEnergy Plus Inc., the parent company of Alliance Bio-Products, has learned a great deal about giving and receiving funding for emerging biofuel technologies. That’s particularly true with the company’s cellulose-to-sugar (CTS) process, which is starting to see some progress. While it can be challenging for startups to commercialize emerging technologies, it’s not impossible.

Corporate Overhaul
I first learned about the CTS process in October 2012, when a Melbourne, Florida, startup named Carbolosic LLC secured the worldwide exclusive license to a patent from the University of Central Florida. At that time, the CTS process was merely a lab-scale way to conduct chemistry capable of pulling useful sugars and lignin from cellulosic materials, using mechanics and dry catalysts. Carbolosic’s grand plans for this young technology were limited by the lack of a committed partner with the funds or ability to execute them. This is where Alliance BioEnergy first came into the picture — the company made an equity investment in Carbolosic.

Within weeks, Carbolosic requested additional funds. But with nothing to show from our initial investment, we insisted on implementing some controls and policies before investing in the second tranche. By February 2013, Carbolosic had depleted the second round of funding and hadn’t built, scaled, optimized or advanced the process, which violated the policies and procedures introduced just months before.

In the spring of 2013, we were left with a choice: pull the plug on this promising technology, or overtake the company and restructure the commercialization plan. Since the technology still showed great potential for industries promising significant growth, we chose the latter. The resulting corporate overhaul meant replacing management and the board of directors, negotiating out of several dead-end leases and contracts, and developing a new funding plan to commercialize the CTS process.

At this point, several well-known Fortune 500 companies were spending billions exploring “economically viable” cellulosic conversion technologies. Increased demand for sustainable options led the U.S. Department of Energy and the U.S. Department of Agriculture to issue grants and loan guarantees to almost any company that applied. One by one, these mammoths stumbled and withdrew from the market altogether, leaving taxpayer-funded scrap heaps in their wake. Beyond the cellulosic world, highly publicized, government-backed failures in solar, wind, batteries and other renewable industries occurred almost daily — taking a toll on consumer confidence and hope for the rapid development of commercialized sustainable energy.

Shallow Pool
What’s a startup to do when competing in the shallow funding pool for new technology? We learned quickly that if you want DOE funds, you either need to be well-versed in this area, or spend thousands of dollars on grant writing, lobbyists, legal and accounting services, and infrastructure, only to have a chance at winning the prize. Then, even if you win, it takes years to navigate the process, and there’s no guarantee you’ll advance to the next round. A small company with a promising technology can’t spend that kind of time and capital without a guaranteed return on investment. Failure would be devastating.

This tough decision often pushes small companies to look to Wall Street funding — but there are many attached strings with this option. Either they want total control and the lion’s share of any upside, or a project so de-risked that a local bank would issue a loan with a signature. For us, forfeiting control wasn’t an option — we didn’t come this far to just hand it over to a boardroom of suits in New York. De-risking was exactly what we needed the funding for — CTS is a new technology, after all. We needed to build a pilot plant and laboratories, staff them with PhDs and engineers, and spend several years scaling and optimizing, as well as putting the whole process together for a commercial application. Either way, it was a losing proposition.

It normally takes between nine and 14 years to take a new chemical process from lab to commercialization, but since this was a mechan-catalytic process, we knew that time would be cut in half, at least. But this would still take tens of millions of dollars to accomplish, so our only option was to look to friends, family and people we knew had invested in higher-risk projects.

Keep it Close to the Family 
Our first goal was to structure an investment vehicle allowing us to raise smaller amounts of money from more people. We settled on using a public company and holding a private placement raise. This way, we could control how much of the equity we issued, and raise funds only as needed. We didn’t want to go the route of a reverse merger or buy a shell, so we immediately filed an S-1 registration and began the process of taking our company public. After several months and multiple government filings, we emerged as a publicly traded company in February 2014. This allowed us to start fielding investments from people we knew, and we quickly raised several million dollars and began developing and scaling the CTS process.

With the funds in hand, building a pilot plant that could help us speed up the lab-to-commercialization process was our first priority. By early 2015, we had built Ek Laboratories near Orlando. This wholly owned subsidiary of Alliance BioEnergy housed our pilot plant and analytical laboratories. We hired Richard Blair, the technology’s inventor, and surrounded him with PhDs and engineers to optimize and scale it. Each time we needed more funding, we could open a new private placement and expand our shareholder base through new and existing connections.

Alliance Bio-Products is in the process of purchasing a recently closed bioethanol plant in Vero Beach, Florida, through a mixture of debt and equity. The equity portion of the investment is being done through a 506(c) filing under Alliance Bio-Products. The filing is still open for investor consideration to reduce as much debt as possible. Once the purchase is complete, the plant will be retrofitted with the CTS process and is expected to be producing 8 MMgy in 2018.

Ultimately, we accomplished what the giant companies couldn’t with all the government and Wall Street funding at their disposal, and are well on our way to providing a commercialized solution for the increased sustainable energy demands.

Author: Daniel de Liege
Chairman, Alliance Bio-Products