April 18, 2006

Visionary Investors Cast Their Eye on Ethanol

Follow the leaders.

Or is that, follow their money? In this case it's both because leaders with money (aka, "visionary investors") are marshalling their resources to take advantage of "green" and "clean" technologies as they stake a beachhead on our technology future. While the billionaires listed below are beyond personal jeopardy on these ventures, they can't resist the combination of relatively low risk and potentially high pay-off that attends the most obvious business challenge of the 21st Century - replacing the oil paradigm with a renewable energy one.

These are fulfilling gambles. As Steve Jobs fatefully put it to John Scully decades ago, "Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?"

Excerpts from two recent articles reveal the players and the risks of the new investment game.


Internet Visionaries Betting On Green Technology Boom
Vast Market, Huge Profit Potential Beckon Investors
by Annys Shin, Washington Post

Bill Gates, John Doerr and Steve Case believed in the Internet long before Wall Street did. Now, they're betting on the next great "disruptive" technology: alternative fuels and other environmentally friendly products, but this time other investors aren't far behind.

To be sure, the investments don't make up a large proportion of their portfolios, and even with oil at $70 a barrel, alternative energy sources are still at the margins of the market.... But just as two decades ago they saw the Internet as a way to make money and change the world, they now think green technology is poised to make a difference of its own.

Sun founder Vinod Khosla has started his own fund to invest in clean tech companies. And Microsoft co-founder Paul Allen is financing a Seattle company that is trying to turn canola oil into diesel fuel.

"The green, sustainability movement is going mainstream," Case told The Washington Post last year, and "we want to ride that wave."

"Clean technology" in particular is a small but growing area of investment that has attracted tech billionaires.

High oil prices alone are not the reason for the spike in interest. Low corn prices and technological advances have made ethanol a potentially cost-effective alternative to fossil fuels, said Elif Acar, an energy analyst with Standard & Poor's. An energy bill that passed Congress last year has also accelerated the adoption of ethanol by forcing oil companies to eliminate a popular gasoline additive, and it mandates that more biofuel be mixed with gasoline.

There are some parallels between clean tech and the early days of the Internet, Propper de Callejon said. It is starting from a relatively small base, driven by technological innovation and underinvested relative to the size of the potential market.

The impact of tech dollars is being felt already. Until recently, the ethanol industry has been the province of large agribusinesses and farmer cooperatives. Today, Neil Koehler, who relied on one angel investor to finance his first ethanol company, took his latest venture public and received financing from Gates.


Ethanol Stocks: Harvesting Risk
by Joanna Glaner, Wired News

If you're itching to invest in a risky but hot and environmentally friendly niche, here's what to look for.

Supply and demand: Ethanol fuel is an alcohol that can be derived from several types of plants. In the United States, which constitutes about 3 percent of the ethanol auto fuel market, most of it comes from corn. In Brazil, the world's leading ethanol producer, it's mostly derived from sugar cane. But it also can come from other crops or from non-food plant matter, which is called biomass ethanol.

Rising gas prices and government legislation are the two main factors driving up domestic ethanol demand.

"It's growing at a phenomenal pace," said Bob Dinneen, president of the Renewable Fuels Association. "There is probably not a corner of the globe that isn't looking to build a biofuels industry."

Leading firms: Much of the investment in ethanol plants is done by farmer cooperatives, but a few publicly traded companies are also involved. They've been richly rewarded by investors for their efforts.

IPOs to the rescue: Upcoming stock offerings provide perhaps the clearest indicators of ethanol's popularity as an investment.

Ethanol non-pure plays: Given the steep appreciation in shares of companies closely associated with ethanol, investors might want to consider less obvious candidates.

Guesstimating the hype factor: Popular sectors always make for exceptionally risky investments. Ethanol is no exception.


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