KiOR: the inside true story of a company gone wrong, Part 2

A company on the brink

The company was speeding towards a 2011 IPO. But the fuel yields were low; the fuel was not usable by their initial chosen downstream partner; the catalyst they were using to get even down to this unsatisfactory product, ZSM zeolite, was in the $7,000 per ton range. Catalyst stability would be challenged, everyone knew, with the water that is contained in wood chips. Steam can be highly problematic for zeolite.

More than that, the company was facing a potential problem with the metal content  in the biomass feed that accelerated the deactivation rate of the catalyst, which resulted in excessive amount of daily catalyst replacement, according to one KiOR scientist.

There were reactor design issues. The pilot reactor that was working wasn’t used for the demo unit.

There was a rush to commercial-scale of the NASA type. Management issues, communications issues can be seen. Disclosure issues, “truth in data” issues. And, a series of statements to the state of Mississippi that would be impossible to live up to without major improvement in yield. Capital needs were going to be tremendous, and beyond an IPO there was a loan guarantee process and the state of Mississippi loan application to be successfully navigated.

Why the rush to scale? All venture-backed companies rush. But was there a special rush on with Khosla-backed companies, and did that rush apply successfully to industrial technology? The State of Mississippi quoted this passage from the Harvard Business School case study, Khosla Ventures: Biofuels Gain Liquidity:

“Khosla played an active role in helping his portfolio companies determine appropriate milestones in the process of moving from a pilot to a commercial operation. He encouraged his companies to focus on 15-month or 15-day or 15-hour innovation cycles, unlike the 15-year cycles of innovation in the nuclear business, in order to “test, modify, allow lots of mistakes and still succeed.” 

The goal was to test ideas in 10% of the time that it would take a large company. Once that was achieved he often challenged the team to reach another 10x reduction in cycle time. month or 15-day or 15-hour innovation cycles, unlike the 15-year cycles of innovation in the nuclear business, in order to “test, modify, allow lots of mistakes and still succeed.” 

Everyone was counting on everything to improve in the demo unit, and in 2011. As sometimes happens. And, with design corrections, fingers crossed this could be translated to a commercial-scale unit. It’s been known to happen, yields improving as scale increases and design improves. Not always, not often, but sometimes. Could KiOR pull it off?

Maybe, just maybe.

KiOR was hanging by a thread as the summer of 2010 commenced. In a few days, the first recorded visitors to Pasadena demo unit, representatives of the Mississippi Development Authority, were expecting to see the demonstration unit in action.

We’ll see how all those concerns worked out in the next part of our series, as KiOR launched its demonstration unit, geared up for more financing and an IPO, and hurtled towards commercial-scale.

Further reading. 

The O’Connor resignation letter
The March 15 2012 O’Connor email memo
The March 22 2012 O’Connor technology assessment
The April 21 2012 O’Connor technology assessment
The April 30 2012 O’Connor memo
The Spring 2013 O’Connor note