It was a sobering moment Friday. Two executives of Solyndra LLC, after being honored by the President, receiving vast sums of money from investors, and earning kudos and accolades from industry and government, asserted their Fifth Amendment right against self-incrimination and refused to testify before a congressional committee investigating the solar cell manufacturer's bankruptcy and potential improprieties in the procurement of loan guarantees. We are not privy to the corporate planning but are comfortable stating that that was definitely not in the business plan.
A more successful business model (for the moment anyway) appears to be that of cellulosic ethanol entrepreneur Mascoma Corporation, which on Friday filed its S-1 in anticipation of its IPO seeking $100 million in investment. As one blogger reported: "the numbers continue to look strong, and the timelines continue to point toward commercial volumes of cellulosic ethanol in the 2013-14 time frame, at affordable prices." We shall see.
Mascoma describes itself as follows: "Using its proprietary consolidated bioprocessing, or CBP, technology platform, Mascoma has developed genetically-modified yeasts and other microorganisms to reduce costs and improve yields in the production of renewable fuels and chemicals." While the holy grail is commercial success using any biomass resource, Mascoma is hedging its bets and touting application of its "bugs" to ethanol producers. It asserts that its "consolidated bioprocessing" is better than current processes and that it can help ethanol manufacturers produce more cheaply. This resort to established product lines is becoming a trend. An article in Scientific American, The False Promise of Biofuels by David Biello, reports that many in the biofuel area, where the lack of success in commercialization of biofuel applications has been discouraging, are seeking to use their proprietary technologies in other areas such as pharmaceuticals and cosmetics.
Internet commentators draw parallels between Mascoma and Solyndra based on the government support each received. Frankly, we find it not much of an insight. Government support is an enticement for investors. If you have it, it will be easier to locate private financing. If you don't, it is just the opposite. Still, federal and state involvement is eye-opening. Mascoma's S-1 reveals that it has yet to turn a profit over the past five years and in fact has lost almost $140 million so far. It has been able to do this with a little over $100 million in private investment, $30 million in debt and $34.5 million in revenue. Eighty-six percent of Mascoma's revenue in 2010 came from government sources, which is substantial; government grants exceed $65 million. The Department of Energy has provided separate grants of $20 million and $4.3 million, New York's Energy Research and Development Authority and Michigan's Strategic Fund have contributed $14.8 million and $20 million, respectively, in return for facilities in each state. A few million ($6.3 MM) has come from the BioEnergy Science Center at UT-Battelle. And somehow, for less than a million dollars, the Province of Alberta has a commitment for the construction of a facility in Alberta.
We hesitate now as we write our conclusion, for fear of jinxing Mascoma. We hope and trust that the its economic trajectory is 180 degrees from that followed by Solyndra. But just in case, we offer this small bit of advice: pay close attention now to the D&O policy. The next shoe to drop for Solyndra and its officers and directors will be lawsuits alleging various forms of misfeasance as individuals and entities that were financially burned seek to shift their loss. We could write much regarding D&O policies. It will suffice here to counsel for focusing on pursuing coverage extensions for government investigations and for a requirement of "final adjudication" in any species of fraud exclusion. The market is reportedly soft (except for Chinese reverse mergers) and there is no time like the present to establish the most favorable coverage terms. Stated differently, when your executives are taking the Fifth and the litigation sharks are circling is no time to be parsing your coverage.