Wednesday, June 18, 2008
Interview with Mike Giardello, Materia
Mike Giardello is CEO of Materia (www.materia-inc.com), a Pasadena-based firm which is also behind Elevance Renewable Sciences, a new joint venture funded to the tune of $40M by Cargill and a number of venture investors. The inventors of Materia's olefin metathesis technology were awarded the Nobel Prize in Chemistry in 2005. We caught up with Mike at GreenTech 2008 earlier this month, to learn more about how the firm's technology is used, about the joint venture, as well as the challenges of getting what is a broadly applicable, basic technology to a number of very different markets.
For folks who don't know what you do, tell us about Materia?
Mike Giardello: We're a catalyst technology company, and a Caltech spinoff. The catalyst technology is a platform technology allows us to interconvert carbon-carbon bonds. There are a lot of applications in materials, fine chemicals, and pharmaceuticals. Most recently, we finished up a large joint venture and financing with Cargill. That was in renewables, converting natural oils, and products of natural oils, into chemicals and materials to replace petrochemical feedstocks. We closed that deal in November of last year, then raised $45M from external sources -- TPG was the sole investor in that action. Materia also invested hard cash in that. We have a pretty broad program with them to develop new materials and chemicals, and we have several things in the pipeline which you will be hearing about. There is paraffin replacement using soy waxes and special waxes to replace paraffins as a feedstock, personal care products, and antimicrobials, which are are some of the products we can talk about. There are also a number of other things we can't talk about at this time. That's half the plant story. The other half is starch. Starch is now moving toward cellulose, and converting that to ethanol. For us, there's also a lot of opportunities outside of that. There are lots of platform chemicals you can get from fermentation processes, and we're working with lots of biotech companies to convert those platform intermediates to higher value intermediates using our technology. Internally, we're heavily into the energy area, so in offshore oil and gas and also in energy generation, particularly in composites for turbine blades and other aspects. So it's a pretty broad application base and platform.
So is that broad application of technology the reason for the joint venture--which I guess is an entirely separate company?
Mike Giardello: Yes, they've been operation for awhile in Chicago, and they have 20 people. I'm on the board and they meet monthly. They have had tremendous financing from TPG and an incredible management team, senior executives from BP and Amoco, senior people from Cargill left to join it as well. Cargill is not a chemical company, and we certainly did not have the money to invest to further develop it, and you can imagine, with the first round of investment at $45M, that was well outside our abilities. So the best thing to do was to put this together to finance it, and put together a management team to develop those applications of this technology. In the end, we'll always supply the catalyst, and we help the partner and customer in the application.
With that deal, you have some equity?
Mike Giardello: It's a 50/50 deal between Cargill and Materia, and we were each diluted equally by the financing. Materia investors chose to invest as well because it was such a great deal.
It seems this is because you've got such a basic technology that it makes sense to instead spin out these companies rather than pursue each of these markets yourself?
Mike Giardello: It's good news and bad news. A platform technology takes a long time to develop. You have to be very careful on how you spread your resources. If you are spread too thin across too many areas, all of them are going to fail. Platform technologies also take a long time to get to market. Unlike biotech, we're readily assimilated into multi-trillion dollar chemical industry's established infrastructure, it's drop-in technology. That's the good news. If it was the biotech on top of that--not readily assimilated, we'd really be strung out there. So to have a platform company with a broad base of operations and all the success we've had in commercial development, we've only raised about $35M over the past ten years to do that. We've done it on about a third of what a typical platform technology company would.
Tell us about deployment and where all these things are in getting to market?
Mike Giardello: We're right at the inflection point right now. Not including Cargill, which just happened, historically, we typically found one to five million dollar deals and homes for our technology. We're now looking at ten to hundred, or twenty to two hundred dollar deals for homes for our technology over a five to seven year period. So we're really making a transition. If you want to be a billion dollar company, you can't do it on a bunch of two or three million dollar deals. It has to be those 10, 15, 20 million dollar pieces. Over the next 12-18 months we'll be crossing the threshold in those types of transactions. Cargill is the first of many.