Solazyme: They Might Be Giants

Two guys from the Bay Area come up with an idea to produce renewable fuel from algae in open ponds.

It’s a common tale, and in the renewable fuels business it is too often a story with an unhappy ending. But it happens to be the beginning of Solazyme’s story too – one that is quietly acquiring the shape, if not quite yet the dimensions, of a Bill Hewlett and David Packard story. But is there more than a casual connection between the Hewlett-Packard story and Solazyme, founded in 2003 by Jonathan Wolfson and Harrison Dillon?

Digest readers have been consistently voting Solazyme into exalted positions in every one of our competitions – the 50 Hottest Companies in Bioenergy, the Transformative Technology 30 and more – since we ourselves were founded. Readers have long believed what the DOE and a growing cadre of strategic partners and investors have also concluded: that Solazyme is increasingly likely to fit into the “win” column in a roster of renewable energy “winners and losers”, and that the win in this case opens up spectacular opportunities for scale. But how big?

What exactly is Solazyme?

To look at the company’s prospects, let’s first consider what it is.  They themselves get uncomfortable when described as an algae company – seeing algae as a fermentation platform and themselves no more an algae company than Anheuser-Busch is a yeast company simply because they use yeast to ferment their beer.

Their website describes them as a synthetic biology company – but that hardly captures it either – naming the company after its tools. Imagine describing Apple as a Unix-based programming company.

Their product – renewable oils – doesn’t nail it down, either. It sounds about as glamourous as Wesson, and about as accurate as describing Hewlett-Packard as a maker of oscillators.

It is inaccurate because it defines the company around its products rather than its process, and I suspect that if the backers of Solazyme had felt they were investing in a product line or a process, they would have bailed on the company five years ago when Jonathan Wolfson and Harrison Dillon concluded that making algae from ponds or closed photobioreactors was simply too tough a proposition.

The left turn

Instead, the company took what Dillon usually describes as a “left turn” – based on the conclusion that the proper way to see algae is not as an industrial organism well suited to the production of simple sugars through photosynthesis, but rather as a uniquely greedy little gobbler that, like an unrestrained youth munching his way through a series of super-sized fast food meals, that can produce both an astonish volume and an astonishing range of oils out of those simple sugars.

What Solazyme sometimes feels like is a maker of designer oils, but with the industrial ambitions of a Calvin Klein or an Yves St. Laurent, discontented to remain in a couture world of beaker-based discoveries and tiny, high-priced oil deliveries.

Oil company as Prada

It is easier to understand Solazyme in this way, because when you invest in a firm of designers, you are investing in the ambitions and the capabilities of the designers themselves. A designer’s spring collection is important, but in the end it is “the Devil wears Prada,” rather than the “Devil wears leather” or “the Devil wears tannin, because the designer used tannin to produce the leather.” It is the individuals – and the limits of their imagination – that define the company – and at the nexus of their ambition and industrial capability we will ultimately discover what Solazyme is destined to be.

So at the Digest we spend a certain amount of time observing the gold dust twins, Harrison Dillon and Jonathan Wolfson, attempting to figure out how well suited they are to the industrialization of designer oils. There’s no doubt in any circles, these days, that they can make a compelling range of renewable oils.  But can they make a monster company?

What kind of oil would you like?

Dillon himself talks about the magic moment when they ask companies, who have been long saddled with dealing with the vagaries and limitations of petroleum, or palm or canola – “what kind of oil would you like?”

It is a cool question, but a dangerous one. Couture is filled with such questions – as is any red-light district – and there is money to be made in custom tailoring, but in the end you are a tailor and not an industrialist.

There are 50,000 renewable chemicals, and a handful of monster fuels, that can be made from renewable materials. The Solazyme challenge is no longer the door opening process of discovering ways to make a lot of great stuff, but to ratchet down the costs and to develop the channel partnerships that will turn very cool designer oils into monster fuels and chemicals.

Partners with quality and in quantity

So, insightful investors have been carefully measuring the brewmasters at companies like Solazyme, LS9, and Amyris to understand that quality of their partnerships, their roster of strategic investors. At Solazyme we see Chevron, Bunge, Roquette, Unilever and Ecopetrol. Not the only companies out there, but each of them monster channels to market. Martha Stewart had KMart and Time Warner – for sure, Solazyme has enough.

But what will they make, and will they be defined as suppliers to their partners – suppliers delivering low-cost designer oils to monsters who never promote their partners – or some sort of an “Intel Inside” partner that supplies brand value as well as attractively designed and priced ingredients. That’s the bet, isn’t it? Ingredient maker – great little company. A renewables version of Intel – the monster of all monsters.

The Biggest Thing

Someone is going to do it. No one remembers the maker of the kerosene lamps that Standard Oil was formed to serve, but just about anyone knows the name Rockefeller. This shift – the shift from fossil oils to renewable oils – is the the biggest thing that will ever happen in the industrial world.

Nothing is as pervasive or valuable as energy, and oil. It is a $4 trillion industry that over the course of time will shift from fossil resources to renewable ones. Not driven by global warming or energy security – those these are accelerating factors – but by markets chasing supply to meet demand in a world that is becoming still wealthier and thereby inclined to increase its demand.

Its the biggest change, ever, rivaled only by the digital transition. And we know how many fortunes that spawned for those who saw themselves as something more than a maker of oscillators, or Unix-based programmers.

Its a part of our work too, as investors and observers – for our success lies in thinking like the scout, looking at the present yet looking for the future. It’s the scout’s job to figure out that the Baltimore Federals pitcher from the wrong side of the tracks with the funny glove and a weight problem is not in fact George Ruth, but is The Babe.

The Sultans of Renewable Swat?

And it is the owners job to recognize that he is not investing in a pitcher, or a reliable source of strikeouts and wins, but in a player. Ruth redefined baseball, but it took more than a little vision on the part of baseball itself. Will Solazyme’s founding partners become the Sultans of Renewable Oils just as Ruth became the Sultan of Swat?

Too early to tell, but enough readers and investors are backing them to win to conclude that, while the race has barely begun, they have landed pole position in the greatest race of all. Let’s see if they have the engine, and the pit team, and the moxie, and the smarts, and the savvy, and the hunger to win all the roses that champions are decked out in.