A Chat with Solazyme’s Jonathan Wolfson at NYU Entrepreneurs Festival

It is not easy making a physical product—particularly when using biotechnology—and the results may be surprising.

That was the key message this past weekend from Jonathan Wolfson, co-founder and CEO of San Francisco-based Solazyme (NASDAQ: SZYM) at the NYU Entrepreneurs Festival. At the event, Wolfson, an alumnus of the university, sat with me for a keynote fireside chat about Solazyme’s origins and the company’s current path.

Solazyme produces renewable oil from microalgae for personal-care products, food ingredients, and industrial uses, along with making biofuel that has been tested by the military.

The company has seen its share of changes and some growing pains, including shifting its focus beyond its early plans for biofuels. Solazyme also took some heat last year because of production delays at its plant in Brazil.

Despite such setbacks, he said the company is pursuing new partnerships and opportunities in industries that were not part of Solazyme’s original game plan.

Xconomy: We’re coming up on the anniversary of the founding of the company?

Jonathan Wolfson: This will formally be the 12th anniversary, coming up in a couple of weeks. But the idea goes back to 1989, where I met the guy, who I co-founded the company, on my first day of college.

XC: How did Solazyme come together; I hear it was founded literally in a garage?

JW: It’s a little more complicated than that. That’s the Silicon Valley garage story. While that’s completely true, it followed lots of other things. We had been talking about starting a company to make renewable fuels from microalgae going back to the late 1980s. It took us a long time; we both did other things. I started another company [InvestorTree], a financial services firm here in New York.

After 14 years of talking about it, my friend was living in Palo Alto, I was in New York. I bought a $600 car on Craigslist, drove out to California, and moved in with him and his wife. We set up in the garage with a couple of hundred strings of algae, a futon, and some computers.

XC: Who did you feel you really had to convince that algae could be used this way and how did you sell them on the idea?

JW: There was what I thought the idea would be, what it is, and what it became along the way. Those aren’t exactly the same thing. I think one of the most important things for either current entrepreneurs or people who are thinking about this is, one of the things that I learned between the first company I started and the second company was that you need to follow the opportunity. Initially the idea was to create low-carbon fuels. We’re destroying our planet. There’s a real need for low-carbon fuels and it turns out that microalgae were the original oil producers on the planet. They’ve evolved over billions of years to make oil. When you pull petroleum out of the ground, you can do molecular fingerprinting and demonstrate that a fair amount of that oil originated from microalgae.

The idea then was, “How can we speed this up in real time using the tools of modern biotechnology?”

What ended up happening was the original technology didn’t exactly work. We had to retrofit it. This was after we raised our first round of financing. Which led to some very “exciting” discussions about convincing our early investors that although the original technology, growing algae in big covered ponds, didn’t work early on, we arrived at the conclusion that algae was still the best platform to make oil. There was just a different way to do it.

For us it was industrial fermentation, which means big stainless steel tanks and plant-based sugars. Instead of asking the algae to do photosynthesis themselves, you feed them sugars from other plants that have done it, and then they make oil for you. We had to go back and pitch the initial investors on this idea of growing algae in the dark in big steel tanks. There wasn’t that much money in the company, and these were Silicon Valley, risk-taking types. It turned out to work exceedingly well.

The second thing is if you’re making oils, you don’t necessarily have to be a company that’s dedicated to fuel. Along the way we learned we can turn these oils into anything we use oils for today, from food to industrial applications like soaps, to cosmetics, home care products, and laundry detergents.

XC: When you started looking to these other segments, did you get concerned you were going in too many different directions?

JW: That’s always been a serious and semi-valid criticism of Solazyme. Once we developed a platform that allowed us to make oils at large scale, and to tailor those oils, that the number of market opportunities we could go into created a lack of focus.

One of the things that entrepreneurs are forced to do constantly is to trim back lots of really good ideas to keep energy in a relatively narrow band. There’s no question that if you try to do everything, you will fail.

XC: How much of a challenge was it to gather people to work with you on this?

JW: We had to convince a lawyer to do the legal work for us when we were raising money, and get paid only when money was raised. But that lawyer wouldn’t do it unless you convinced them that the idea had currency. We wanted to bring in some advisors so that we could pressure-test the technology and market opportunities. We gave them stock options, but they had to believe those options would be worth something.

If you expand that out, it applies very heavily to employees and partners.

We decided very early on we couldn’t go vertical in most of our markets. We had to focus on our technology core and being able to make things that could improve people’s lives. We brought in a few people in business development in fuels. We were able to form a partnership with Chevron. We also brought in some experts on a consulting basis to help us work with the Pentagon. We ended up forming a huge partnership with the U.S. Navy.

Solazyme didn’t have fuels competency, but we were able to leverage all the people at Chevron and we were able to leverage all the people in the Navy who had tremendous fuels expertise. They told us what we had to make and how. When were looking at personal care, we partnered with Unilever. For paints, we partnered with AkzoNobel.

XC: Are there misconceptions about biofuel and using microalgae in this way that you had to clear up for others?

JW: When we first started, I didn’t know of another company working in microalgae specifically for fuels. Within a year or two, there were five. Within a couple more years, there were over 100. But they were trying to do the technology the way we originally started to do it. It was hard to explain to people that we were doing it differently.

We would go to conferences, and people with companies based on technology we had dismissed would give presentations saying you can’t grow algae in stainless steel. That it leaches zinc from the stainless steel. We would spend hours with potential financing sources explaining that we were doing it every day.

We spent years getting to know analysts at consulting firms, having them come in and look at our technology and follow our progress.

XC: How much of a challenge has it been to scale up what you’re doing? It’s not like developing an app.

JW: There’s a very substantial difference between building a piece of software or a Web-based service and making physical things. There’s an astonishingly big difference. You need to understand that difference when you think about starting a company.

People look at some of the big tech companies and how they pay large amounts for what seems like somewhat unproven technology, applications, or websites. If you’re on the knowledge side of the world, you need constant innovation, but you can get to market relatively quickly and start to generate revenue early. When you’re making things, particularly in biotechnology, it takes much longer.

If you look at the Internet, mobile applications, or even computer hardware, there are investor communities that built up over time in each of these areas, and an investor community that built up around medical biotechnology.

The space that I’m in doesn’t really have that core, investor community yet. It doesn’t have that model of how businesses are valued the same way either. That timeline and scale-up, for us, is different.

We have to assemble very large amounts of capital. To develop this technology, Solazyme has raised over $500 million or $600 million in equity and debt financing from the capital markets. On top of that, we’ve raised project financing. We built a very large plant in Brazil. We got a low-interest loan from the Brazilian Development Bank. We partnered for a plant in Iowa with ADM (Archer Daniels Midland). Part of this is about taking a concept, proving it out, but if you make stuff you have to be able to make it at scale. That’s hard. Sometimes you don’t get the timeline that you want.

At two of our plants, we hit our timelines right on the money. At our biggest plant, in Brazil, it’s taken longer to get that plant up. We went public to finance it, and when you go public to finance something, having those kinds of delays out in the open is painful.

But we’re now in the market, for the first time, with many of our food products. We have these low-saturate oils that are healthy from a heart-health perspective. We have a personal care line called Algenist that’s in every Sephora and on QVC. Even with all these products, it’s been almost 13 years. We just got our key regulatory clearance in the U.S. for our food oil three weeks ago. For our protein and other applications, we got those regulatory clearances last year.

It’s about understanding what you are getting into from the beginning. What do the timelines really look like, as opposed to what you hope they look like? And are you prepared to stay with it?

XC: Did you ever feel like you bit off more than you could chew? And was there a moment when you felt the company rounded a corner and started to feel more tangible?

JW: I felt like I bit off more than I could chew for the first five years of running this company. I don’t have a technology background. I went to every lab meeting and it was my informal-formal education in biotechnology. There were plenty of times when I thought this was an enormously ambitious project. But that was one of the things that motivated the core people at Solazyme to get out of bed in the morning, taking on something big, hairy, ugly, and has the opportunity to make a huge impact.

In December 2007, we made our very first in spec fuels. And at the time in California, you couldn’t buy a diesel passenger car. So our chairman, who financed us out of the garage, his wife had gone to Nevada and bought a diesel Mercedes. She volunteered to let us borrow her new diesel car and run our fuel in it. I remember fueling up the car, driving it, and thinking this might be doable.

Then we launched a cosmetic brand in 2011. Never expect that you’re going to know what’s coming. I never thought I’d be involved in personal care and anti-aging cosmetics.

The technology we found from the algae while making fuels was really by mistake. The algae made these compounds to protect themselves and it turned out they had really great impact from an anti-aging perspective.

It’s a long road and we’re not done.

XC: What do you see as the driver going forward for Solazyme?

JW: We are quietly selling fuel every day to a large fleet customer in the U.S. But with oil prices where they are, and being in the early stages of running our big plants, we’re not at a place where I think this technology is going to be extremely, broadly adopted for fuel. Notwithstanding the fact that the environmental footprint is dramatically better and we’ve demonstrated that the Navy could certify an entire fleet of ships and planes running on this stuff.

Down the line, the fuels will be a very significant component. Right now they are a smaller part of what we do. Food is going to be very important for us, personal care will continue to be, and the Algenist brand continues to grow every year.


Photo: A Chat with Solazyme’s Jonathan Wolfson at NYU Entrepreneurs Festival

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