Cleantech Firms Grow Up

It was a noteworthy coincidence when three green technology start-ups—bio­based chemical firm Segetis and biofuels companies Mascoma and Qteros—announced new chief executive officers in the same week last month.

The changes at the top signal that investors in the three “cleantech” firms have made it their New Year’s resolution to push the companies toward commercialization. And in interviews, all three CEOs acknowledge that they’ve been brought in for the unglamorous but critical task of bringing new products to market.

The three companies have much in common. All use cellulosic feedstock to make renewable fuels or chemicals. They are about the same age: Qteros and Mascoma received their first venture capital funding in 2006, and Segetis followed close behind in 2007. Segetis and Mascoma are both in the stables of leading cleantech venture capital firm Khosla Ventures.

Segetis CEO Atul Thakrar and fellow CEOs William J. Brady of Mascoma and John A. McCarthy Jr. of Qteros have come aboard companies that are roughly mid-way between the research lab and the marketplace. All three firms have facilities designed to prove the technologies at larger than lab scale, but none have commercial operations.

The firms are also about halfway through the expected venture capital time horizon—seven or eight years—after which early investors start looking for a return through an initial public offering of stock or an acquisition by a larger company. To this end, the investors sought executives who can oversee the sometimes-wrenching strategic changes that lead to success in the marketplace.

Not surprisingly, the three CEOs see common challenges ahead. Thakrar summarizes his three top priorities as finding customers, setting up robust operations and supply chains, and planning for the future of Segetis’ technology through continuing R&D. “We need to get a customer engagement and at the same time make sure our semiworks facility is making product consistently,” Thakrar says. “And while this business is going on, we need to be doing exciting things with the platform.”

The Segetis platform produces biobased monomers intended to replace petroleum-derived raw materials for plasticizers, solvents, and polyols. The company obtains the monomers by combining levulinic acid esters with biobased hydroxyl compounds. The value of the resulting levulinic ketals, the company says, is a significant reduction in greenhouse gas emissions and an improvement in the health and toxicity profile of products made from them.

In outlining his goals, Thakrar emphasizes the importance of maturing the company’s culture. “The grease in the wheels is having a cultural change within the organization. A truly entrepreneurial culture is already there,” he says. But now Thakrar is pressing employees to think about what it will take to sell their products. “That’s the shift. The focus was on developing technology, developing molecules. Enough of that. This is where you have to challenge yourself and get feedback from the marketplace,” he says.

A similar cultural shift is under way at Mascoma. Reflecting on his first board meeting, Brady marvels at the firm’s success in converting cellulose to ethanol at its pilot plant in Rome, N.Y. “Here they sit, they’ve done it,” he says. “And like many technology-driven companies, the inclination is to try to make it just a little better and just a little better. I walk in, I look at it, and I say, ‘Wow, what we need now is a commercialization path.’ ” Brady says the investors are counting on him to accelerate the firm’s progress. Their biggest worry is that commercialization will take too long.

Meanwhile, McCarthy is guiding Qteros’ managers and scientists to take the company’s proprietary Q Microbe to the next stage. The microbe is designed to break down cellulosic materials and ferment the resulting sugars to make ethanol. McCarthy is determined to break the bug out of the lab and is aiming development efforts to ensure that it will scale up efficiently for a manufacturing plant. “These organisms do everything we need them to do,” he asserts. Now, he says, he will shift resources to bring in stronger chemical and mechanical engineering capabilities.

The cultural change brings some side effects. All three firms were started by scientists. But as the corporate motivation moves away from scientific discovery, the role of the scientist-as-founder becomes ever more remote. All three new CEOs are the third executive to lead their respective company. And at each, the founders currently have little to no role in company decision-making. None are in the management ranks, and none are on the board.

The leadership changes that marginalize scientific founders are driven by venture capital investors. “If you are an entrepreneur seeking venture capital funding, you have to go into this with your eyes wide open,” says Emily Mendell, vice president of strategic affairs at the National Venture Capital Association, a trade group. “Many times, the founder of the company is a scientist or technologist who has an innovation with a tremendous amount of promise. It doesn’t mean they know how to run a company. You need both for success.”

It’s a delicate matter when a founder needs to take a back seat to more seasoned businesspeople, Mendell acknowledges. “It’s not like they’re kicked to the curb. They have stock in the company; they can cash out. But for a first-time entrepreneur, the company is like their child.”

Commonly, venture capital investors first replace the founder with someone experienced in running start-up firms, someone who can make things happen quickly. But for the second change in leadership, Mendell observes, investors scan their network of contacts for someone “with grey hair, who can provide ‘adult supervision.’ ” The ideal candidate usually has strong experience in both operations and sales and marketing and may have led businesses in foreign markets.

Segetis’ Thakrar certainly fits that model. He has held business unit leadership roles at chemical makers Cytec Industries and Rohm and Haas, including Rohm and Haas’s operations in India. More recently, he was chief operating officer at Soane Energy, a specialty materials start-up.

Similarly, specialty chemical maker Cabot was the training ground for Mascoma’s Brady. He served as general manager of several divisions at the firm, where his roles included operating older businesses in carbon black and developing and commercializing newer products.

In contrast, McCarthy came to Qteros with significant start-up experience. As an executive vice president at cellulosic ethanol producer Verenium, he helped mature the firm into a publicly traded company. Prior to Verenium’s public stock offer, he helped lead it through two acquisitions and an important partnership with BP.

The three new CEOs say they have already begun to guide their companies’ growth. In addition to bringing their firms’ technologies to commercial scale, they plan to find new partners, raise capital, and create strategies to deal with shifting government policies on emissions and renewable energy.

Brady reports that he is enjoying his jump to the start-up world. “The really great and refreshing part of being at Mascoma is that everyone gets focused really quickly on what matters most. It all gets aligned, and off you go,” he says. “In bigger companies, alignment can be a long process and is more ongoing, but in a small company what you have to do is obvious. And when something is not working, that’s obvious, too.”