Could This Startup Save China from its Pollution Nightmare?

April 10, 2014
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Startup LanzaTech just raised $60million in a Group D round of funding from heavy hitters Mitsui, Siemens and China’s CICC. Khosla Ventures is also part of a long list of illustrious early investors who came in during a previous round. Before last week’s $60 million, LanzaTech had already been funded to the tune of $150 million.

What Does LanzaTech Do?

What LanzaTech does is nothing short of amazing. Its climb, on the world stage, is timely and well accepted. The company’s technology takes pollutants found in most industries and converts them, through a proprietary process, to harvest low-carbon fuels. What that means is that they take the carbon monoxide from say a manufacturing plant, that would otherwise pollute the atmosphere, and by using a biological enzyme, found in the gut of certain animals, they convert the pollutant to something like ethanol or jet fuel, or even butadiene and propylene.

Let’s think about that for a minute. By latching on to an exhaust vent and making jet fuel from what comes out of it, they have made it possible for companies that pollute and pay a carbon tax to actually make the byproduct into a revenue center instead of it being a cost center. In the past, pollution and carbon credits were all cost centers; with LanzaTech’s innovation, they can now make money from the smoke stacks and come out being environmentally responsible.

In short, LanzaTech offers the possibility to create low carbon fuels and chemicals from waste resources, mitigates GHG emissions from growing industries, increases energy security and increases access to energy for all.

 

A Little History

Founded in 2005, LanzaTech’s technology was developed in New Zealand, and recently shifted its headquarters to Illinois. While in New Zealand, the company successfully developed its prototype that resulted in 16,000 gallons of ethanol, produced over the course of a year’s operations from industrial stacks. Needless to say, this company is not at the pipe-dream stage any longer. It has a deliverable. And it was this deliverable that caught the eye of the Chinese.

 

China Needs LanzaTech

The Chinese have a major problem. They have built their economy to a point where it is nearly the largest in the world, but the pollution cost, monetary and social, has taken a toll. The world, conservatively, sees 7 million deaths annually from pollution, and much of that comes from China.

As the Chinese increase their income levels and begin to look for alternatives and a better quality of life, the government has considered shifting the heavy polluting factories to neighboring countries like Myanmar and Laos. But LanzaTech’s technology would obviate that.  By incorporating Lanza’s technology in Chinese steel plants and oil refineries, the country could increase revenues, cut costs, protect jobs and improve air quality. The technology would be a boon for all manufacturing based countries.

Baosteel, one of China’s largest steel manufacturers, was the first to sign on with LanzaTech. Also, an important early stage investor is CICC, one of the biggest investment banking firms in the country.

There are huge hopes for this technology. China could see massive economic and environmental gains from LanzaTech’s product and the return on their investment will go a lot further than just the IPO. To China, this is about improving its ecological footprint and sustaining its world-leading manufacturing industry.

 

Strengths and Success Factors

The neat thing about LanzaTech is that it has created a unique solution to an existing problem. From an entrepreneurial perspective, there is much to learn from this startup.

Our environmental degradation is advancing at such an alarming rate, from the level of increased carbon emissions, that the earth is altering its climate map. The strength that LanzaTech has is found in its approach to the market. This may very well be a one product company, but that would be just fine, because it’s a product that every manufacturing country is going to need. The market need and demand is built in. When I mentioned that entrepreneurs can learn much from this company, that’s what I was talking about. The marketplace already knows it needs this product. LanzaTech doesn’t have to prove why its technology is needed, it simply has to prove that it works. This is an enviable position for any startup to be in.

 

Challenges

While LanzaTech has advanced its technology over the past decade, it still needs fine tuning. Because it is a biochemical process using enzymes, there is a certain amount of processing time and a certain amount of control that the company needs to perfect before the output numbers are optimal. However, notwithstanding the efficiency, LanzaTech is the market leader in this sector. It will take years for a new challenger to catch up to the point LanzaTech is at. And by then, LanzaTech will have advanced further. So, the only thing stopping the company from taking the manufacturing sector by storm is itself…

The additional $60million coming LanzaTech’s way is going to be used to penetrate markets deeper and increase efficiency, which means hiring additional professionals and developing the technology further.

 

Key Success Issues

To be successful, LanzaTech needs to latch on to large industries, with government help (such as tax credits or subsidies for companies which use the technology), in a short period. This will help them fray the initial development costs and get to market at a more effective cost structure. To achieve this they need to enter a motivated market, like China, India and South Korea. LanzaTech is already doing that, and by going after the governments directly, they are in a position to advance rapidly.

I want to see this company go further and I’d like to see it advance the technology to something that is a lot more modular. Deployment is my main concern. I want to see the technology easily augmented to a plant or a site and not take years just to retrofit or renovate the existing facility – such time delays will have tremendous drawbacks. But for now, LanzaTech is most certainly headed in the right direction.

 

When Dealt Lemons, Make Lemonade

What I really like about this startup is the fact that it is being realistic and not trying to reinvent the wheel with manufacturing plants. Most environmentally conscious groups would want to change the way manufacturing plants are built, what kind of energy is used to power them etc. That just isn’t realistic and would result in manufacturers leaving countries that imposed such rules (due to costs). That idealist way of thinking just isn’t going to work right now. LanzaTech’s solution is elegant because it takes the current infrastructure and inefficiencies and makes something of it. There is a great lesson all entrepreneurs looking to start a new business can learn from this burgeoning startup.

Stay hungry,
Aaron Hoddinott signature

 

 

Aaron

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Like all of you entrepreneurs and investors out there, Aaron has been in the trenches. He is the founder of an influential online media and PR company. From oil wildcatters to mining prospectors, tech gurus to medical doctors, and even celebrities, Aaron has helped market and expand brand awareness for a diverse range of publicly traded companies ran by entrepreneurs from all walks of life.

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