Biofuel venture an ‘act of faith’

The investment appeal of biofuels seems clear – growing populations urgently need alternatives to scarce and expensive fossil fuels.

So when a company finds a way to remove naturally occurring algae from water and other waste streams (such as forestry waste) and convert them into biofuel, the commercial potential is immense – even more so when a byproduct of the process is clean, fresh drinking water.

NXT Fuels, formerly Aquaflow, was formed in 2005. Within a year it had produced a bio-diesel derived from wild micro-algae. Its patented process treats wastewater and creates “green crude oil” without genetic modification of the algae.

A renewable hydrocarbon fuel that’s virtually greenhouse gas-neutral and compatible with existing infrastructure sounds like an investor’s dream.

But NXT founding director and angel investor Nick Gerritsen said convincing those who’ve grown rich from one technology to migrate to another was always a challenge, so turning a clean technology business into one that’s sustainably profitable requires resilient, patient investors.

Gerritsen’s investment firm, Crispstart, specialises in renewable energy start-ups and what he calls “clean tech”. He recognised the potential of NXT’s business model from the outset but was savvy enough to know there were many hurdles between start-up and payback.

“It’s in a zone that’s extremely hard to crack from a new-tech perspective. In this sector, people always want as much volume as possible for as few dollars as possible,” Gerritsen said.

NXT Fuels director Anake Goodall joined the company only recently. He describes himself as a “professional director and social entrepreneur”.

Goodall met Gerritsen in 2008 in Singapore at an event focused on the sustainability of global freshwater supplies. “We struck up a conversation and stayed in touch through a series of serendipitous encounters in true ‘Kiwi village’ style”, said Goodall, who looks more like a rock band manager than someone you’d expect to see in a corporate boardroom.

For Goodall, it was a compelling prospect to be involved in a company that could potentially remedy rising carbon dioxide levels and find a greener way to replace the world’s diminishing fossil fuel reserves.

“NXT’s technology makes possible an important part of the sustainable future the planet so clearly needs and provides the lowest cost transition bridge possible. And it’s available today and is being led from humble Aotearoa New Zealand,” Goodall said.

He is equally enthusiastic about his new business partner.

“Nick is extraordinarily visionary, passionate and focused. These are all prerequisites for this transformative space, which is almost by definition unwelcoming, dismissive and lonely. This isn’t a role for the faint-hearted investor or entrepreneur.”

Angel investment was indispensable to ventures such as NXT, Goodall said. “Start-ups, especially those in uncharted waters like NXT Fuels, are at one level acts of faith. Established industry money is usually trapped in its own business-as-usual understanding of the world and knows all the reasons why this won’t work.”

But NXT is already harvesting revenue as well as algae – $122,669 after expenses in 2011 for its United States and New Zealand-based projects. As it makes the transition from technology researcher to implementer, the company is by requirement shifting its sights from angel investors to industrial-scale project design and delivery capital.

But Goodall said the small, immature and relatively conservative New Zealand capital market remained an obstacle.

“We struggle to establish a national vision that’s solidly supported by central Government. In this context a sum of, say, $200 million for a commercial-scale refinery is a significant barrier to overcome.”

Every proposition in Gerritsen’s portfolio to date has been angel-backed and while raising capital this way continues to be fundamental to his approach, clean-tech projects require more capital for deployment than traditional businesses.

“Obviously we make it clear from the outset that these are early-stage companies and there’s a real risk we could all lose our capital,” he said.

Gerritsen is a lawyer and former intellectual property consultant.

It might seem relatively unusual for a lawyer to move into the rollercoaster world of angel investment, but he says the move came naturally to him. He sees his role ebbing and flowing over a business’ lifecycle.

“I invest in the companies every day with my time – and often cash too. So I’m a blend of both angel investor and entrepreneur, probably more entrepreneur.”

As a result, his portfolio includes everything from renewable fuels to carbon refining and digital manufacturing. “I just engage with stuff that resonates with me.”

Produced in association with the Angel Association New Zealand.

First published in the New Zealand Herald on Thursday August 15 2013

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