Venture capitalists make a lot of bets and most don’t pay off. Bless their hearts.
That seems to be the case of Vinod Khosla and Range Fuels. Khosla’s firm, Khosla Ventures, raised all the money Range could need to prove its syngas process would scale-up to produce the equivalent of gasoline from scrap wood.
Turned out to be a dry hole. Earlier this month, Range Fuels said it was closing its commercial facility and laying off an undisclosed number of employees.
The company raised an estimated $320 million over three years. Some came from investors, some from the federal government, some came from state and local governments around Soperton, Georgia, where the company made big claims for its coming plant. Biofuels Digest called Range the 14th hottest company in the space less than two years ago.
Robert Rapier has smelled something wrong at Range for a while and tried to warn other reporters with little success. He had seen another Khosla biofuel start-up, E3 Biofuels, go belly-up while Khosla was claiming all was well. Rapier detailed a range of changing stories from Range going back to 2007.
“We were given numbers of $150 million to build 100 million gallons of cellulosic ethanol capacity. What we are being told now is more than $320 million to build 4 million gallons of methanol capacity. Of course they intend to do so much more, but I have a very big problem giving more taxpayer money to an organization with this history.”
Over-promising and under-delivering is a standard practice in the venture capital business. When government money is involved it can lead to skepticism about the whole space. “Plant Closure Bursts Georgia’s Biomass Bubble,” is the headline on the Atlanta Journal-Constitution, “a case of good money thrown at unproven science and lofty promises.”
Again, if that’s private money, if it’s venture capital, that’s just business. When it’s public money, people get mad. And not just at Range Fuels. They get mad at Vinod Khosla, they get mad at the very idea of cellulosic methanol or ethanol, they start to see renewable energy itself as a scam.
Range is not the only failure on Khosla Ventures’ cellulosic books.
The AJC notes that Cello Energy was sued for fraud after testing of its fuel revealed it was fossil-based, not renewable. Although Khosla says the company never made an equity investment in Cello (as is commonly reported), it caused significant negative publicity. And a Georgia ethanol company called Southwest Georgia LLC announced a Chapter 11 bankruptcy this month, citing debts of $14.8 million. Changing World Technologies was another failure, costing investors $40 million.
All along the way, of course, these failures are also backed by glowing media reports, everyone from Scientific-American to Discover Magazine to Money. That’s how a VC has to roll – they’re like oil wildcatters from 80 years ago who were drilling 9 dry holes for every gusher.
Naturally, there will be plenty of losers for every winner in this space – with the losers getting more attention. But with so much taxpayer money going into these projects, we need to pay closer attention to how (and if) these investments will pay off.