This document discusses financing and risk assessment for algae projects. It notes that algae projects require unique financing structures that are usually a blend of equity investment and government assistance or guaranteed debt. Initial "seed money" funding carries higher risk and premiums. Private placements and regulation D exemptions are common ways to raise seed money. The document also outlines various risks involved in algae projects, including management, regulatory, operational, technological, and marketing risks, and stresses the importance of properly evaluating and addressing risks for both project developers and investors.

1. ALGAE FINANCING
AND RISK FINANCE
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NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

2. A L G A E F I N A N C I N G
• Financing structures and risk assessment.
• Many algae projects at various stages of
development. Projects don’t get built without
financing. These projects require unique financing
that will likely be a blend of equity (invested cash
Overview
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that will likely be a blend of equity (invested cash
equity, government assistance) and debt including
government guaranteed debt.
• First stage is funding to carry the project through debt
and equity financing. This initial funding is
sometimes referred to as “seed” money. Because of
the early stage risk, seed money frequently carries
premiums to the general equity investment.
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

3. Use of Seed Money
1. Develop bankable business plan.
• Necessary to develop costs of project as well as
project risks.
• Assess costs to overcome mistakes (repopulate, new
water source, new algae strains, new harvesting or
extraction technology, etc.).
A L G A E F I N A N C I N G
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NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009
extraction technology, etc.).
2. Acquire site options.
3. Fund advance project permitting (permits with longer
application and approval times).
4. Fund consultant and professional fees through project
financing.
5. Development of financial model with sensitivity to risk
factors.

4. L G A E B I O F U E L S
• Raising money is regulated by federal and state
securities laws.
• For seed money receipts of $2 million to $4 million
common structures are private placements under
Regulation D of the Securities Act:
Raising Seed Money
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Regulation D of the Securities Act:
– Exemption for limited offers and sales not
exceeding a threshold dollar amount
– Compliance with state blue sky rules
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

5. • No public disclosure or solicitation
– E.g. no advertisements, articles, or notices of the
investment opportunity
– Limit invitations to invest to persons with whom
the company has a pre-existing relationship
Private Placement
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the company has a pre-existing relationship
• Accredited / Non-Accredited Investors
– Accredited investor definition – income/net worth
or status with company
– Depending on type of private placement, may
have a limited number of non-accredited investors
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

6. • Parameters of Debt Financing
– Initial discussion of debt/equity ratios
– Project size and total funds required
• Reliance on government incentives
Debt Financing
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– Some government loan guarantees will require a
personal guarantee
• Required equity (investment)
– Sources: strategic partners, large private equity
sources, institutional investors
– Adequacy of working capital
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

7. • Loan guarantee programs through the USDA and
DOE
• Government Grants
– State Energy Program
Government Programs
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– Bioenergy Program for Advanced Biofuels
• Coordinating Government Programs with Financing
– Debt, debt enhancement, grant (equity) timing
(post close, investment enhancement), etc.
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

8. Sophisticated investors and lenders will spend as much
time on risk assessment as is spent on the financing
decision.
Risk Assessment
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NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

9. • Who are the owners that are managing the project
development?
• Who will be the board?
• Management’s track record.
Management Risk
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• Are they replaceable or unique for this investment
(e.g., technology inventor)?
• Management of operations balance of personnel.
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

10. • From which governmental entities will consent and
permits be required?
• Stable or changing regulations.
• Government support for the project (infrastructure,
funding, etc.).
Regulatory Risk
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funding, etc.).
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

11. • Sustainability of algae strain, tests on species
longevity and confined growth systems.
• Issues related to release or discharge of algae from
facility.
• Susceptibility to viruses and other diseases; cost to
Operational Risk
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• Susceptibility to viruses and other diseases; cost to
repopulate.
• Viability of water quality in confined systems; nutrient
replenishment, chemical accumulation or depletion.
• Power interruption risk.
• Weather risk.
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

12. • Is technology utilized expensive? Replaceable?
• Viability of project if competitors use better
technology.
• Patent and license technology risk.
Technology Risk
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NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

13. • Algae growth and algae oil production capacity.
• Storage facilities (when is company forced to market
vs. storage).
• Long-term product markets and marketing contracts.
Processing and Marketing Risk
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• Dependence on oil and gasoline pricing.
• Government incentives vs. market pricing.
NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009

14. Summary
• Evaluate priorities, technology, time, money.
• Business plan and financing model should evaluate and
address priorities and risk.
• Proper risk evaluation and disclosure protects project
developer and investor.
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NATIONAL ALGAE ASSOCIATION CONFERENCE | HOUSTON, TEXAS | SEPTEMBER 17-18, 2009
developer and investor.