Oil Change

It probably wouldn't dawn on you to rub diesel fuel on your cheeks, eat your expensive facial moisturizer with a spoon, or pour olive oil into the gas tank of your car.

But one day very soon, you might wake up and take a shower using sweet-smelling soap and shampoo, apply lotion to your face, and drink some vanilla-flavored milk for breakfast.

Later, you could drive your diesel-powered car to the airport and board a plane running on biofuel, where you'll be offered crackers with cheese or some ice cream as a snack.

And all of it will be made from algae.

Welcome to the future.

It's the future envisioned by Jonathan Wolfson 93C and Harrison Dillon 93C, founders of Solazyme, one of the most promising renewable oil companies in the market. Started in 2003, the San Francisco–based business has swiftly pulled ahead in the thunderous race toward more sustainable energy—attracting reams of positive press, millions in private investment and federal funding, and a landmark contract with the US Navy to test its biofuel in jets and ships.

Making oil from algae is not a new idea, but then if it were easy, giants like Chevron would have been doing it a long time before 9/11. One thing that sets Solazyme apart from other biotech hopefuls is its ability to customize—to produce oils suited for a range of different uses and products. And so far, these algal impersonators seem to be doing their jobs just as well as the original ingredients, if not better. Perfecting biofuel is the ultimate finish line, but creating a variety of revenue streams along the way is giving Solazyme an edge over companies that are laser-focused on fossil fuel alternatives.

Another point in their favor is the potential for scalability. A number of startups have produced viable renewable fuels, but many hit a wall when it comes to ramping up the volume necessary to balance the cost. Solazyme's technology will theoretically allow them to partner with other companies and use old oil refineries to produce millions—maybe billions—of gallons of renewable oil a year.

But perhaps most compelling is that Solazyme is making what's known in the fuel industry as a drop-in solution—oils that can be pumped straight into the tanks of existing planes, trains, and automobiles, without mixing or modification. That's where another serious biofuel contender, ethanol, has failed, and it's a big reason why Solazyme was named number one among the "50 Hottest Companies in Bioenergy" for 2011 to 2012 by Biofuels Digest.

"We've developed the ability to convert low-cost plant sugars into renewable oils," said Dillon, speaking to a class at Emory's Goizueta Business School last fall. "We design the oils, and we make them so that they plug into the 150-year-old existing infrastructure for processing oils."

Dreaming Green

If all start-ups have a story, then Solazyme's is a fairy tale.

Wolfson and Dillon met as Emory freshmen in McTyiere Hall. Dillon grew up in Atlanta and both his parents went to Emory, so the university was a natural choice for him; his father is a commercial real estate lawyer, and his mother became a real estate agent. Dillon had developed a fascination with biology—specifically, genetics—in high school and knew Emory would give him the chance to explore it.

Like a lot of Emory students, Wolfson is from New York, the son of a neurologist and a psychologist. When he arrived at college, he already knew his way around the inside of a university research lab; his father has spent much of his career in science grant writing and research and still runs a large lab at the University of Connecticut. His parents' social life revolved around that work, he says, which served as excellent training for the culture he and Dillon have created at Solazyme.

Both say their parents never pushed them toward a particular career, but let them find their own way. "I just remember my dad saying, whatever you do, make sure you love it," Wolfson says. "Getting up every day is a hardship if you don't love what you do."

At Emory, the two hit it off right away, frequenting Jagger's pub and Taco Mac in Emory Village (where they "didn't really card"), and P. J.'s in Sage Hill (a "very active haunt at that time"). They joined different frats but took some of the same classes early on. Wolfson majored in political science; Dillon majored in biology and worked in a genetics lab.

"Harrison was clearly looking for something more than a standard lecture class at Emory," says Barry Yedvobnick, a biology professor and Dillon's adviser. "The Genetics Project Lab class that I taught him typically attracted a small group of students who were willing to put in long hours doing their own lab research. These students needed to have enthusiasm for doing science, or they quickly found themselves in the wrong class. For Harrison, this was exactly the right class."

Dillon and Wolfson also started taking a camping trip out West together for a couple of weeks every August, a tradition that continued long after college. All that time as students—over books and beers and coffee, during parties and pre-exam all-nighters and cross-country road trips—they talked.

And one thing that they talked about a lot, even as freshmen, was starting a company together. A biotech company. One that would help solve the world's energy problem.

"I don't think we necessarily knew what we were talking about, in college or even after," Dillon says. "Once we started to mature professionally, it became possible to begin to understand what it meant."

But it would be a decade after their Emory graduation before the pair was ready to launch the company they'd been talking about since the year they met. Wolfson went on to earn a law degree and an MBA from New York University, and worked in corporate law and finance for several companies—including the financial services startup InvestorTree, which he cofounded and served as COO. By 2002, he was vice president of finance and business development for the software company 7thOnline.

Dillon also got a law degree, from Duke, and a PhD in genetics at the University of Utah, where he went on to manage the biotechnology patent program of the Technology Transfer Office. He is licensed to practice before the US Patent and Trademark Office and worked on biotech patents for the San Francisco–based intellectual property firm Townsend, Townsend, and Crew, which merged with Atlanta's Kilpatrick Stockton last year.

With every year, every advanced degree, every new position, every step and challenge and setback, the bright but hazy idea that originated at Emory took on clearer shape. Wolfson and Dillon kept in close touch, taking those annual camping trips and comparing notes on their evolving careers—as well as the emerging renewable energy market, which they started watching and discussing seriously around 1995.

By 2003, the pieces seemed to have fallen into place. Wolfson quit his job and moved out to California, and Dillon worked for another six months at a law firm before following suit.

They spent the next year living in a house in Palo Alto and growing algae in his garage. "It was us and several thousand strains of algae. It may sound romantic, but in reality it was extremely high stress," Dillon says. "We were working on the business plan, and raised a little bit of money, not a lot. Once I quit my job, we figured we could eat Ramen for about nine months while we tried to raise funding."

In general, Wolfson points out, startup companies need little more than office space and computers; a biotech venture requires lab equipment and technical expertise. "Most biotech companies are spun out of a university," he says. "There are almost no examples of successful biotechs started from scratch because of the high barriers to entry."

But Dillon and Wolfson's work caught the attention of entrepreneur and investor Jerry Fiddler, the founder and former CEO of the software company Wind River Systems. Fiddler has a soft spot for startups like Solazyme. He started Wind River in his own garage in 1981 and during the next two decades led it to market prominence, with some $400 million in annual sales; it was acquired by Intel in 2009.

Fiddler now heads the angel investment firm Zygote Ventures and has served as Solazyme's board chair since 2004, helping to finance their first labs and marshaling an elite group of advisers to propel the business forward. "It was critical to have that guidance," Dillon says.

Skip the Sun

At the most basic level, making oil from algae is like collapsing time, revving Mother Nature up to light speed. Algae are simple creatures composed mainly of sugar, protein, and oil molecules—some are as much as 50 percent oil. It's thought that most of the petroleum currently being pumped up from deep in the ground is the remains of ancient, decomposed algae.

Some of the hundred-thousand-plus kinds of algae are better suited to making oil than others—namely single-celled microalgae, which, if given the perfect conditions, can double their volume in a matter of hours. Wolfson and Dillon spent the better part of two years experimenting with different strains of algae in ponds. The organisms grew, and they produced oil, but the problem was scale and cost: it would take thousands of acres of water to produce the ocean of oil they envisioned, and the price tag was far too high.

"When you do something at a tiny lab scale and it's basically successful, it's easy to extrapolate and convince yourself that it will be scalable and cost effective," Dillon says. "But then you do the math and you realize that you have to make a change. We finally looked at each other and said, we have to figure out something different."

And that's when they decided to skip the sun.

Some algae, they had found, can grow in the dark, if you feed them right. Most algal strains are autotrophic, meaning they use light to make their own food through photosynthesis. But other kinds are heterotrophic—they can bypass photosynthesis altogether by consuming plant sugars that have already converted sunlight into energy. Dillon and Wolfson shifted their focus to cultivating heterotrophic microalgae that could be fermented, using different sorts of sugars, in tanks. Big, dark tanks.

"We basically went back to our investors and said, what we were doing wasn't working, but we'd like you to fund this," Dillon says. "We were really nervous about them dropping us, but they believed in us as entrepreneurs, not just in our original business plan."

The investors also saw the light when it came to growing algae in the dark. "There was a lot of logic to it—the whole reason we started with algae is because of its capability to make oil, but it was doing two things, photosynthesis and then making oil," Wolfson adds. "We said, those are two different processes, and we can create indirect photosynthesis by feeding sugars to algae in fermentation. By doing that we get to leverage an infrastructure that's already available."

Liquid Green

If you land at the San Francisco airport and head into the city, you'll pass the Solazyme headquarters on your right. With 180 employees, it's a real-life working lab, with scientists in white coats and goggles peering into microscopes and clear containers of bright green slime gyrating madly inside glass-fronted machines about the size and shape of a minifridge.

The company's scientists are working to create custom oils. They start with carefully selected strains of microalgae, and genetically modify them by switching out sections of their DNA that encode oil production, designing oil molecules for use in particular products like diesel fuel or soap. Then they feed the algae plant sugars from things like sugarcane, corn, wood chips, and switchgrass.

They begin in Solazyme's smaller labs, micromanaging every stage of the molecular evolution from algae to oil to develop the desirable product. If an oil appears to have the right stuff, the whole process moves across the plaza to the next building, where there are bigger tanks for fermentation and testing. That's where the Solazyme scientists can manufacture barrel-sized quantities of custom oils and send them to partners for extensive evaluation. Once it passes muster, a particular oil can be produced in much larger quantities at Solazyme's facility in Peoria, Illinois.

Solazyme has developed a range of oils and products for various purposes and filed some 280 patent applications in the US and abroad. They have tailored oils for use in soap, shampoo, laundry detergent, lotion, and dielectric fluid for electrical tranformers. They also discovered a whole food algae ingredient that's causing a stir among food manufacturers. Made from algae that's about 50 percent oil, Dillon says, algalin flour—which looks like coarse, yellow-gold powder—can be used as a healthier alternative to high-fat ingredients.

"When you put it into processed foods as a replacement for saturated fats, like eggs and butter, it has a dramatic reduction in calories and fat and cholesterol," Dillon says. "But your mouth still thinks it's a high-fat food because of the texture. It could have a major impact on public health by making processed foods healthier."

In the Solazyme conference room, there's a shelf of about thirty commercial products and prototypes displayed for show-and-tell, from a jar of diesel fuel to a substance that's identical to olive oil at the molecular level. Visitors also can take rides in a Jeep Cherokee that's been running on house-made biofuel for more than two years. But the most popular stop on the tour is the ice cream taste test, when guests are invited to compare Haagen Dazs to ice cream made from algae—with a fraction of the fat. (If you don't dwell on the algae part, it's delicious.)

Unlike most of their biotech competitors, Wolfson and Dillon have struck up partnerships in some diverse markets. They have contracts with chemical companies Unilever and Dow, cosmetics chain Sephora, agra-giant Bunge, and food producer Roquette Freres to incorporate Solazyme oils into their products. The cosmetic products are already on retail shelves with the brand name Algenist, and some of the nutritionals are available as well.

"Expanding to other markets was a major shift in strategy that went against conventional wisdom. Fuel is a trillion-dollar market," Dillon says. "But for us, diversification has been a good thing. We could build highly successful, profitable products a lot faster in these areas."

Of course, there is still that trillion-dollar fuel market—the pearly gates of the biotech business, promising a heady combination of unimaginable wealth and the eternal satisfaction of saving the planet. Wolfson is quick to add that developing oil for fuel "is still an enormous focus, one that has a lot to do with our desire to do something meaningful. It has the highest impact potential from an environmental and sustainability standpoint."

As pleased as they are to be making oils for moisturizer and ingredients for ice cream, Dillon and Wolfson have their eyes on a tougher customer: the US military. The Department of Defense has a keen interest in reducing its dependence on foreign oil, and the US Navy has set a goal to get half its fuel from renewable sources by 2020.

Solazyme emerged as one of the leading supply candidates when its fuel tested successfully in a series of trials—including, most recently, replacing diesel in a nine-hundred-foot Maersk container ship on a voyage from northern Europe to India, about 6,500 nautical miles.

In late 2009, Solazyme received a $21.8 million federal grant from the Department of Energy to build a biorefinery. The navy contracted with the company for more than 130,000 gallons of its alternative fuel for testing during 2010 and 2011. And in December of last year, the navy announced the largest biofuel buy in history—$12 million for 450,000 gallons—to be supplied by Solazyme, in partnership with Dynamic Fuels, which will process the algal oil into fuel for jets and ships.

"We've been delivering fuel to the US Navy for a couple of years now, and we're thrilled to see helicopters fly and destroyers run on our biofuel," Wolfson says. "The military has led the development of a lot of new technologies that started out as prototypes and were eventually adopted across the spectrum. This is about energy security for them, and the navy has traditionally pioneered transitions in energy technology."

While Wolfson and Dillon have undoubtedly become familiar figures on Capitol Hill, the vast majority of Solazyme's financial bedrock remains private. Last May, the company held an initial public offering (IPO) of more than ten million shares at a stock price of $18, raising about $227 million; they reported total revenue of $39 million in 2011, compared to $38 million in 2010.

The stock price has fluctuated in the year since the IPO, but Wolfson says the company is still in growth mode. "The markets themselves have been pretty choppy, and that's affected us like it has everyone else," he says. "But we have very strong investor support, and our job is to keep our heads down and continue building the company. The IPO was not an end point, just another stage in the life of the business."

The company is now focused on ramping up—way up. Last year they bought the fermentation plant in Peoria, which they retrofitted and began operating within a few months. They have entered into joint ventures with two other companies to make their custom oils in facilities in France and Brazil. And they are raising money to build their own plants, which they think will ultimately be the most cost-effective way to achieve the large-scale oil production they are targeting.

"We believe we've set the stage for commercial expansion," Wolfson says.

They also believe they can continue to attract the necessary funding. The company was named the No. 1 bioenergy company in the world for 2010 by Biofuels Digest and one of twenty-five 2012 Technology Pioneers by the World Economic Forum.

More recently, Solazyme's stock price enjoyed a boost when the company was featured on the CNBC show Mad Money with Jim Cramer as a how-to case study in stock market speculation. Although the company's profitability is still largely unproven, Cramer did a step-by-step analysis to conclude that Solazyme is a risk, but a very, very good one—having a "competitive advantage with many layers of patents and trade secrets."

"Their biological approach to energy production is ingenious, and could not be more timely," says Emory's Yedvobnick. "I am extremely impressed with what Harrison and his colleagues at Solazyme have accomplished, and I look forward to seeing their impact continue to grow."

The demands of running a leading San Francisco biotech company are limitless, and Wolfson and Dillon are rarely in the same room these days. As CEO, Wolfson oversees the financial side and is a frequent public spokesman for the company; Dillon, president and chief technology officer, manages the science and intellectual property development. Both are on the road almost constantly, cultivating company relationships, and either can spin the Solazyme story at a second's notice with stunning clarity and eloquence—whether in an elevator, a board room, or a media interview.

It's a far cry from the Emory dorm rooms where they met as eighteen-year-olds, from the plastic pitchers of beer in Emory Village, from the summer camping trips that gave them stretches of empty time to plan and dream.

But that foundation of friendship is at the heart of Solazyme—and, in some ways, it might be their secret weapon.

Not that it's such a secret. Biotech reporter Michael Kanellos noted that the founders' longtime relationship "places Solazyme into a rarefied club that includes Microsoft, Hewlett-Packard, Intel, Yahoo, EnerNoc, Apple, and Google."

"While conventional wisdom says that friendship gets in the way of running a business, in the right circumstances, it can create an enduring level of trust and stability that is otherwise difficult to replicate," Kanellos writes.

Wolfson puts it this way: "Emory really is the origin of the company, the reason it exists. You get to know each other in a lot of different ways before starting a company together. We knew each other for fourteen years."

But neither Wolfson nor Dillon pretends to be surprised at where they are today. They don't shake their heads ruefully and begin sentences with, "We never dreamed . . . "

Because they did. As college kids, they imagined building a company that would be a leader in the green energy revolution, one that could change how oil is made and used. How their story ends remains to be seen—but it could have the makings of a best seller.

"When you think about all the time we spent together, developing ideas and maturing professionally, people always ask, did you ever think you could get this big?" Dillon muses. "The answer is, yes, we totally expected this to be successful. Very early on, we envisioned that what we did would have a big impact. And that's always been the motivating factor."