Even so, KiOR is more of a business plan than a business. And its biggest asset may be the Khosla brand itself. Khosla Ventures has put money in over 40 clean-tech companies and raised over $1 billion for its latest investment fund.
For investors, evaluating biofuel projects can be tricky. Everything depends on whether the technology succeeds in turning feedstock into fuel in an economical way. KiOR estimates its own production costs for gasoline at around $1.80 a gallon. But advanced biofuel companies are notorious for being overly optimistic on costs based on small-scale production. Another Khosla company, Range Fuels, ran into trouble at the scale-up phase.
Khosla says it’s up to investors to make the call about whether any company’s forecasts make sense. “What you believe will determine the valuation you assign to a company, and if you are optimistic, you will get to frothy valuations and hence take on undue risk,” he says.
So far, investors aren’t complaining. Khosla has already notched two successes. Both Amyris and Gevo saw big jumps in their stock prices. “Those are good returns, and that drives the market for more offerings,” says Sheeraz Haji, CEO of market analyst Cleantech Group. “There is a belief that these are huge markets and that these companies are going to do well.”
Pavel Molchanov, an analyst at financial services provider Raymond James, says there’s room for even more stock offerings. “Conceptually, the market has signaled an openness to consider these companies. I think the fact that we are talking about oil at $110 a barrel provides a very helpful market backdrop,” he says. “If oil was at $30, we wouldn’t be seeing these IPOs.”
Still, it’s fair to wonder if the Khosla IPO machine might overheat. Last year, investors were not interested in the $200 million IPO plans of PetroAlgae, another company with no revenue. And shares of synthetic biology company Codexis haven’t done well. In addition to KiOR, the fuel-from-algae company Solazyme has now filed documents with the SEC for a planned $100 million IPO. Solazyme doesn’t yet manufacture fuels economically, but it’s launched a cosmetics business using its oils.
The nanotech crowd insists that this biofuels boom is hype driven by government subsidies, sexy science, and high oil costs. Josh Wolfe, a managing partner at Lux Capital, where Bock is also a venture investor, argues that “biofuels will turn most investors into biofools. Some of these IPOs are over-promoted and not good businesses. For society it may turn out okay, but investors will surely be left holding the bag.”
We put it to Khosla—is there an IPO bubble in next-generation biofuels? “I am sure a potential for a bubble exists, and we should be careful,” Khosla says. “Whenever quick money can be made, you will see bubbles form.”
The original version of this article contained an anonymous quote that didn’t meet Technology Review’s fairness standards.