LanzaTech co-founder and chief science officer Sean Simpson now spends most of his time in the US, but invests in and advises NZ startups. Photo / File
On paper, the LanzaTech story seems like a textbook case of Kiwi founders making it big, and then investing their spoils in a new generation of New Zealand startups.
And in many ways it is. The Auckland-founded firm is lining up a Nasdaq listing expected to value the firm at US$2.2 billion - which would represent a big payday for investors including the NZ Super Fund and Sir Stephen Tindall.
And LanzaTech alumni have bankrolled, mentored or created a clutch of promising NZ early-stage companies including BioConsortia, Dotterel Technologies and Mint Innovation. And there are more to come as co-founder Dr Sean Simpson and others continue to “pay it forward” and scout new Kiwi talent.
But talking to the Herald ahead of the Blue & Green conference in Auckland this week, Simpson also revealed a few dirty secrets about the cleantech scene.
“One of the challenges is that people tend to trade on a view that New Zealand is clean and green,” he said.
“But in reality, how we think about and process trash is ridiculous. Our concept is to put it in a hole. We don’t sort to any great degree. We don’t make it expensive for people to throw things away.
“So we don’t create the economic environment which attracts or enables cleantech companies.”
Exhibit A is Mint Innovation, co-founded by former LanzaTech vice-president Will Barker. With funds from Crown agency Callaghan Innovation, and investors including Movac, Icehouse and Barker himself, Mint developed a unique gloop - or “biomedical process” - that extracts rare and precious metals from old cellphones, laptops and other e-waste.
In August, after years of trials and product development, Mint opened its first commercial e-waste “biorefinery” - but not in its home base of Auckland but across the ditch in Sydney. And NZ doesn’t figure in its expansion plans.
Why Australia? In part because the Lucky Country offered a grant that covered nearly half the cost of building the $10 million plant.
And also in part because while Kiwis might sometimes look down their noses at the home of big mining, some environmental rules are actually tighter across the Tasman.
“In Australia, it’s illegal to dump e-waste into a landfill and there’s a really strong recycling community,” Movac partner David Beard told the Herald.
Here, the government and many councils encourage e-recycling, but it has been estimated that 98 per cent of our e-waste goes into landfill - which, apart from wasting valuable materials, is problematic for the environment.
“We’d love to have a New Zealand plant but this could be a bit of a wake-up call for NZ,” Beard said.
Instead, the UK and the EU - where e-waste regulations are even tighter than Australia - are next on Mint’s agenda.
One area where New Zealand regulation is strong is genetically modified organisms, which have been banned for two decades.
Whatever its scientific merits, the impetus for the ban was political, after Helen Clark’s Labour Government was embarrassed by the “Corngate” controversy that followed the release of Nicky Hagar’s Seeds of Distrust.
Scientists have pushed for reform ever since and, partly because the technology landscape has evolved, lobbying by the Royal Society and others led Environment Minister David Parker to announce a review in October. It seems likely our government will move away from its near blanket ban to a more nuanced approach, beginning with biomedicine.
But for Simpson, it’s way too late. GMOs figured in the process that LanzaTech was developing to create fuel from industrial waste produced by the Glenbrook Steel Mill south of Auckland.
“There were challenges around the fact that we had an ambition to use genetically modified microbes,” Simpson said.
“Another challenge was securing enough talent, particularly experienced engineers.
“So we moved the company, and a large portion of the staff, to Chicago.”
That was in 2014. And it should be noted there were a range of factors, including venture capital investor Vinod Khosla, who favours shifting firms he invests in (which include Rocket Lab) to the US, an Illinois state government willing to roll out the red carpet with various incentives (our Government had been no slouch, offering LanzaTech $14m in grants, if also throwing a GMO brick wall in its path).
In 2018, LanzaTech began to commercialise its technology with a refinery attached to a steel mill in China - which is now producing 46,000 tonnes of sustainable ethanol per year.
The firm now has three plants in China, with a half dozen under construction across China, India and the US, where the firm received a US$19m grant from the Department of Energy toward a jet fuel plant in Georgia. “And we’re, we’re scaling up in Japan with a facility that will convert gases produced through processing large volumes of trash into fuel ethanol,” Simpson said (Japanese conglomerate Mitsui is one of LanzaTech’s largest shareholders).
In 2020, its airline fuel business was spun out as LanzaJet. Shell, All Nippon Airways and British Airways are partners in the venture. LanzaTech has a 25 per cent stake in LanzaJet and a “path to majority ownership” through its contribution of IP”, according to its Nasdaq listing filing.
Back in March, LanzaTech announced it had agreed to merge with AMCI Acquisition Corp - a spac (special purpose acquisition company) that is already listed on the Nasdaq. At the time, AMCI said the deal was expected to close in the third quarter (that is, by September 30 this year), subject to shareholder approvals.
Since then, there’s been a market meltdown, enthusiasm for spacs has cooled since the US Securities and Exchange Commission began a process of tightening the rules earlier this year, rates have risen and recession looms.
Has LanzaTech decided to wait until the storms pass? Simpson says no. The Nasdaq listing is still very much on. He paints the delay as procedural as talks over details continue with AMCI (which, if things go the original plan, will bring US$150m to the party as the listing raises a total US$275m).
At the time of its filing, LanazTech had 315 staff and was advertising for 38 high-end roles - most of them are in its adopted home-town of Skokie, just north of Chicago, but a handful are located in Georgia, the Netherlands, England, India and China.
A March investor presentation for the Nasdaq listing put 2021 revenue at $26m and estimated 2022 revenue at US$65m - then forecast a series of big jumps that would take it to US$996m by 2026.
The presentation said there had been an operating earnings loss of US$50m in 2021, and said more red ink was on the way with larger operating losses through to a US$91m operating loss in 2024 before a swing to a US$208m ebitda profit in 2025, growing to US$403m in 2025.
Although LanzaTech is lost to our shores, the NZ Super Fund has a 12 per cent stake, bought for US$87m (the bulk of it via the fund’s participation in a 2014 capital raise, with a small top-up in 2020).
If LanzaTech lists at its target valuation, the Super Fund’s stake will be worth US$181m ($285m).
And early backer Sir Stephen Tindall retains an undisclosed stake through his K1W1 fund.
While its Nasdaq ducks are being put in a row, the firm continues to raise funds. In October, Canadian infrastructure investor Brookfield announced it had invested US50 million in LanazTech in the form of a convertible note and secured the preferred right to invest up to US$500 million.
Simpson says other NZ cleantech startups can follow in LanzaTech’s footsteps, with some incubating in NZ then moving offshore, but others retaining substantial local operations - as Rocket Lab has done in its field - if we can get our policy settings right.
“I do see a growing wave of Cleantech companies from New Zealand. I think that it’s a very exciting space,” he said.
“But it’s a space that I’d like to see a lot more focus on government investment, and more university focus.”
So far, he’s struggling to be heard. Outset Ventures, a “deep tech” venture capital firm that numbers Simpson and Peter Beck on its investment committee, proposed 10 changes to the Government’s R&D Tax Incentive and Crown investment grants, with the general themes of lowering overheads, making the schemes more effective and providing long term certainty. None were adopted.
Cleantech is different from other sectors, Simpson said.
“What’s unique about the cleantech space is you require a very diverse array of talent to get a single idea off the ground.
“You don’t just have to be a computer scientist as you might need to be if you’re developing an app. For a cleantech idea, you need to have chemists, engineers of all disciplines and biologists of all disciplines, all coming together to solve complex, real-world problems. And New Zealand has that diversity of talent.”
BioConsortia: An agritech startup developing microbial products that will reduce the need for nitrogen fertilisers.
Dotterel Technologies: A maker of noise reduction and microphone array technology, which has recently expanded beyond its original focus on drones.
Mint Innovation: An Auckland-based firm that developed a bio-remedial process for extracting valuable materials from old iPhones and laptops. It recently opened its first commercial e-waste plant in Sydney.
Outset Ventures: A venture capital fund that invests in “deep technology” or R&D-intensive firms. Also backed by Peter Beck and Icehouse. Outsets portfolio includes Pictor, which earlier this month launched an antibody test, codeveloped with Rako, that will tell you if you’ve had stealth Covid.
Du Val reportedly owes $306m to investors and creditors, according to PwC.