In 2004, a startup called Nanosys tried to go public. It had recruited some of the world’s top nanoscientists for its board and had bought up hundreds of nanotech patents. The idea was that it could revolutionize TV displays, batteries, and maybe even golf balls. It had no product, but so what? Nanotech seemed like it could change everything.
That is when a venture capitalist named Vinod Khosla, then with Kleiner, Perkins, Caufield & Byers, cried fraud. A speech of Khosla’s at Stanford University helped to not only torpedo the Nanosys IPO but also burst a short-lived nanotech bubble.
Here’s what Khosla said, according to a Thomson Reuters publication, at the time: “Personally, I think it is the wrong model for a company, and I think it is a shame that they are going public, because I do not think they are in a position to be predictable enough. And whether they are doing it knowingly or unknowingly, there is a reasonable likelihood that they will defraud the public market.”
Now Khosla’s the one being questioned. “I am looking at Vinod Khosla’s S-1 filing of KiOR, which has a grand total of zero ($0) revenue,” wrote venture capitalist Larry Bock in an e-mail. Bock cofounded Nanosys and was behind the aborted IPO. “Should Vinod be kept accountable?”
For several years, Khosla Ventures has been plowing money into green-energy startups. Now Khosla has begun cashing out by pushing some of his next-generation biofuels companies public. Recent Khosla-backed biofuels IPOs include Amyris and Gevo, and now comes KiOR—a Pasadena, Texas, company that says it will turn wood chips into gasoline and diesel. It expects to raise $100 million in its IPO.
All three companies are early-stage. They’re still building plants and proving their ideas. None have turned a profit. KiOR may be the earliest-stage yet. Its SEC filing is long on PowerPoint slogans (“We Drilled Deep Into the Problem … Not Into Our Planet”) but so far KiOR hasn’t sold a drop of fuel and cautions investors that “we have no experience producing renewable transportation fuels at the scale needed for the development of our business.” The company says it is counting on a $1 billion loan guarantee from the U.S. Department of Energy to build its plants.
Bock now says he wants some “intellectual honesty” from his rival.
So Technology Review asked Khosla whether pre-revenue biofuels companies should be going public. Khosla sent back a detailed memo explaining why biofuels is not like nanotech. Here’s a summary:
Existing markets: Biofuels are end applications with large markets, not just technologies.
Proven technology: In many cases the manufacturing or yield of technology has been proven.
Big payoffs: The payback from success is huge. That was not always true in biotech and nanotech, where there is more risk from competitors. In biofuels, the markets are so huge that if 10 companies produced the same product, each could be a billion-dollar business without interfering with the others.
Predictability: If a company can give investors accurate expectations for the next two to three years, then they can consider an IPO. This is true of biofuels now but not of nanotech in 2004.
Khosla’s main point is that the fuels market is gigantic, whereas Nanosys was all about technologies looking for problems to solve. He argues that having interesting technology without a compelling market is not a good place to be as a business. Even Nanosys’s current chief financial officer, John Page, agrees with that. “That is a fairly accurate assessment of where Nanosys was in 2004.” Nanosys recently reorganized in an effort to generate more revenue from LEDs and batteries.