Green Pioneers

By Anne Arthur
March 2011

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The founders of SAGE Electrochromics in Faribault and Segetis in Golden Valley spent years researching and developing their eco-friendly products, but they don’t consider themselves green entrepreneurs.

Imagine sitting at your desk on a bright, sunny day and, with the turn of a dial, electronically tinting your windows to a custom level that reduces glare yet maintains your view of the outdoors as well as the ambience of natural light. Imagine opening a laptop made from durable bioplastic produced from sustainable biobased resources and manufactured in the U.S.

Thanks to the innovation of two relatively young companies based in Minnesota, the windows are here and the durable bioplastic is likely on its way.

SAGE Electrochromics and Segetis are two of the many companies in Minnesota that exemplify the intersection of innovative thinking, years of research and development, and the entrepreneurial spirit of their founders. They also demonstrate how pioneering green products can potentially break into established markets based on the greening economy and a commitment to environmental sustainability.

SAGE:
Electrochromic Glass

John Van Dine, founder and CEO of SAGE, began his quest to bring energy-efficient electrochromic glass to market more than 20 years ago. With a background in chemistry and a passion for materials science, he systematically refined his ideas through two decades of research and development. The result is SageGlass. Based on electrochromic technology, SageGlass enables the user to control the degree to which the glass, such as a window, tints. The tint feature improves energy efficiency as it reduces the need for excessive air conditioning on days when direct sunlight is blocked. It also enables the user to use natural sunlight—perhaps with a slight tint to reduce glare—eliminating the need for excessive artificial light that might otherwise be used if shades were drawn.

Segetis: Biobased Chemical Building Blocks

Founded in 2006, Segetis focuses on the development and commercialization of chemical building blocks produced from renewable, non-edible, biobased resources such as corn cobs.[1] These biobased compounds can be used as alternatives to many petroleum-based chemical ingredients in products such as plasticizers, cleaning solvents, detergents, cosmetics and paints.

Located in Golden Valley, Segetis was founded by Dr. Sergey Selifonov and Olga Selifonova, a husband and wife team with extensive experience in biochemistry and chemistry. After founding Segetis, the couple founded two additional organizations, Reluceo and XLTerra. Reluceo is in the research and development stage of additional sustainable chemistry-based products and applications. XLTerra uses renewable building blocks derived from corn cobs and other biomass to create bioplastics that potentially have the performance qualities (strength, durability and  ability to withstand significant temperature variation) to effectively compete with traditional petroleum-based plastics in a variety of applications.

Green Entrepreneurs?

Just as there is ongoing debate about exactly what the term “green” means, there is also a debate about which characteristics, if any, make “green entrepreneurs” different from traditional entrepreneurs. Factors sometimes considered when determining entrepreneurial greenness include motivation for founding the business, types of products, production processes and net environmental impact. Yet, the act of creating a company that produces an innovative green product does not necessarily create a sense of green entrepreneurship for the founders of these companies.

Despite the greenness of electrochromic windows and chemical compounds produced from biobased resources, neither Van Dine nor Selifonova refer to themselves as green entrepreneurs.  Their intellectual curiosity led them to their entrepreneurial trajectories long before green-laden terminology entered our lexicon, and long before there was political and consumer-driven pressure to be green.

“I always thought that I might start my own company,” says Van Dine, “but I never thought of myself as a green entrepreneur. When I started, years ago, I was involved in the solar industry. Today we would call that green, but at that time we didn’t think of ourselves that way. We just thought of ourselves as material scientists who were doing great things with material science — things that could make the world better.”

Selifonova does not consider herself to be a green entrepreneur either. She credits Sergey, her business partner and husband, as being a brilliant inventor who has ideas that have the potential, she believes, to greatly enhance environmental sustainability by replacing petrochemicals (made from fossil fuels) with biobased alternatives. Together, Olga and Sergey have co-founded three businesses that reflect their passion for chemistry, innovative ideas and belief in sustainability.

For Van Dine and Selifonova, the entrepreneurial impetus was not to create a green product simply for the sake of creating a green product, but rather to apply existing skills, expertise and years of experience to develop innovative sustainable products they believe in. They are entrepreneurs who happen to be green.

Innovative Green Products: Sustainable Chemistry

Instead of “green chemistry,” Selifonova prefers the term “sustainable chemistry.” She notes that, while there is a trend within the traditional chemical manufacturing paradigm to become greener (such as reducing carbon dioxide emissions), it doesn’t mean the end products are green or sustainable. The sustainable chemistry solutions being explored at Segetis, XLTerra and Reluceo, she says, are entirely different: “We are creating totally new chemicals and materials. Our chemistry solutions are sustainable and responsible. We don’t pollute and we don’t harm the environment.”

And how do these companies create chemical building blocks that are sustainable and environmentally responsible? The answer, in part, is through corn cobs. Using chemistry-based processes, which are completed without fermentation and without the use of microbes, corn cobs can be broken down into sugars and compounds. These component parts, through additional chemistry-based processing, can be turned into building blocks, which can then be used for a variety of applications, including the creation of biobased plastic.

The elegance of this solution is that corn cobs, which are inedible and slow to decompose, are not currently used as a resource for other products. Therefore, they are an existing and potentially inexpensive resource. An additional benefit, according to Selifonova, is simply that the cobs don’t go to waste. “If we spent energy to grow the corn cob in the first place,” she says, “then we should use every part of it—nothing should go to waste.”

In fact, access to existing agricultural feedstock is part of the reason the Selifonovs chose Minnesota as home for themselves and their businesses. They had lived in the Silicon Valley for several years and, despite having enjoyed the entrepreneurial energy there, realized there were personal and professional benefits for establishing their businesses in Minnesota. Their son could attend strong schools, and Minnesota has an established agricultural base (ideal to provide feedstock). In addition, they’d be near an international airport, and they could interact with other scientists, such as those at the University of Minnesota, which has an excellent program for chemical engineering. 

Sitting in a small conference room adjacent to their chemistry lab in Golden Valley, Selifonova shakes a few tiny amber-colored pellets from a small vial into the palm of her hand. These pellets are biobased plastic made from corn cob components. “This particular plastic,” says Selifonova with a smile, “doesn’t exist anywhere in the world except here.”

While other bioplastics are commercially available and appropriate for some applications, they do not yet possess all of the qualities needed to make them competitive with all applications for which petroleum-based plastics are used. For instance, some bioplastics are brittle and prone to crack, others cannot stand temperature variation, and some lack a good water barrier, causing product deformation as water evaporates over time. Additionally, many of the existing commercial bioplastics are made from resources such as cane sugar or corn starch, thus diverting edible resources from the food supply chain.

The bioplastic being developed by XLTerra is thought to have the properties to overcome these performance challenges, while also having the benefit of being produced from a sustainable non-food resource. Yet, challenges exist. As Selifonova acknowledges, “The opportunities today to go green with plastics is limited. We are still years away from having commercial biobased plastics with all of the desired performance properties at a cost-competitive price.”

In part, this is an issue of needing more time for research and development. It’s partly an issue of needing an infrastructure that can support the manufacturing and commercialization of biobased chemicals. For example, corn cobs are not readily available in the quantities needed for commercial production. While there may be millions of corn cobs in Minnesota fields at this moment, there is no infrastructure in place to collect, transport and process them. Another challenge is that the manufacturers that use existing petrochemicals for a variety of applications (such as ingredients for paints, cosmetics and detergents) will need to be convinced that biobased alternatives have comparable (or superior) performance qualities, that they can be cost-competitive, and that they have the added benefit of being more environmentally sound in their production and application.

Despite these challenges, Segetis is moving toward commercialization of its first generation of products, and Reluceo and XLTerra are continuing research and development of other sustainable chemistry solutions.

Innovative Green Products: Electrochromic Glass

Based on electrochromic technology, SageGlass enables the user to electronically control the amount of sunlight that comes through windows or skylights by manually turning a thermostat-like dial or by programming preferences into a unit that will automatically control the glass. The result is dynamic glass that can range from clear to a dark tint, enabling glare control and energy savings.

“The two largest consumers of energy in buildings are air conditioning and lighting,” says Van Dine, “both of which our product can reduce. We have a huge opportunity to reduce demand for fossil fuels by making windows, skylights and other glass applications more energy efficient.”

In fact, the National Renewable Energy Laboratory states that electrochromic windows have the potential of reducing U.S. energy consumption by several quadrillion BTUs (or several “quads”) annually. (The U.S. currently consumes about 94 quads of energy per year.) Additionally, electrochromic glass can contribute to earning LEED (Leadership in Energy and Environmental Design) points for several LEED categories.

With a background in chemical engineering and experience in the solar industry, Van Dine began his entrepreneurial trajectory when he became intrigued by the prospect of transitioning from photovoltaic technologies to electrochromic windows 20 years ago. It seemed not only challenging and interesting from a material science perspective, but he also believed that such a product would benefit the environment and the economy.

“I lived in New Jersey, and I would go to the Princeton engineering school library and do research. I also traveled for my job, so I would talk to researchers throughout the country. I looked at the patent position and realized there was a viable business opportunity in electronically tintable glass, so I started the business on the East Coast. Once I got past the early R&D, the filing of patents and the initial testing phase, the next stage was to do a pilot line. And, because Minnesota is the Silicon Valley of the glass and window industry, it made sense to move the company here at that point.”

After moving to Minnesota in 1998, SAGE spent another five years refining its production processes and further developing and testing its products. In 2005, SAGE moved into its current manufacturing facility in Faribault. And in 2010, SAGE broke ground for its new production facility, which will be five times larger than the existing facility, enabling the production of 400,000 square meters of electrochromic glass annually. (For those interested in green jobs, this will mean an additional 160 manufacturing and technology jobs, as well as approximately 200 construction jobs during the building process.)

“I have patents, and I’m an inventor, but that’s not the primary driver at this point,” says Van Dine. “The primary driver is to build an organization around a product I believe in.”

Passion and Persistence

While Van Dine and Selifonova do not consider themselves to be green entrepreneurs, they certainly possess the characteristics of traditional entrepreneurs. Both are passionate about their products, and both have been incredibly persistent through the years it has taken to bring initial ideas toward commercialization. “It doesn’t happen overnight,” says Van Dine. “It generally takes decades to go from the early lab to full commercialization, so you have to be terribly persistent.”

Both also emphasize the need to have a clear vision, to take risks, to enjoy challenges, to remain focused yet flexible, and to attract exceptional employees.

Says Selifonova, “It’s important for young companies to focus; you need absolute focus. You need to build the right team under the right conditions at the right time in the right space. You need to continually ask, ‘How can we do things better?’ The world is changing all the time, which means opportunities are changing all the time, and you need to remain flexible within those changing conditions.”

It also requires courage, she says, because you need to talk to people, and you hear the word “no” frequently. “But I’m not intimidated by that,” she asserts, “because it’s an interesting challenge: How can you get people from different industries to come together and collaborate in totally new ways?”

Similarly, Van Dine states, “You must have a vision you believe in, and you need to stay ruthlessly focused. You must attract capable, smart, energized people to work with you. If you can’t do that, your chances of success are not good. In the process, you may make mistakes. That’s OK. There’s no risk-free reward.”

Overall, the bottom line, Van Dine says, is that you need to be a good business person. “Ultimately, you have to know how to make money.”

Money and Strategic Partnerships

Not only does the entrepreneurial process require passion, persistence and the ability to make money, it also requires the ability to attract money and investors throughout all stages of the process.

Segetis secured $15 million in funding from Khosla Ventures in 2007, a year after it was founded. Other investors include the Malaysian Life Sciences Capital Fund (managed by Burrill & Company) and DSM Venturing. These investments enabled Segetis to open a production facility in Minnesota in 2009. This facility has the potential to produce 250,000 pounds of biobased chemical building blocks per year. Additionally, DSM, a multinational specialty chemical company, is serving as a strategic partner to Segetis.

Likewise, SAGE has successfully courted investors and leveraged other financial opportunities. In addition to securing $45 million in private financing, SAGE received a $72 million Department of Energy conditional commitment for loan guarantee (under the Energy Policy Act of 2005) and a $31 million Advanced Energy Manufacturing Tax Credit (under the American Recovery and Reinvestment Act of 2009). Additionally, in 2010, SAGE announced that Saint-Gobain, one of the world’s largest window manufacturers, made an $80 million strategic equity investment in SAGE. While SAGE will remain an independent company, this partnership will entail the sharing of intellectual property, manufacturing facilities, R&D efforts, marketing strategies and distribution partnerships.

The benefit of a company being young and small is that it fosters innovation and organizational flexibility. However, the strategic partnerships they’ve forged with existing, well-established global companies ensures access to additional expertise and shared resources, such as distribution channels and marketing efforts.

Marketing: Performance Over Greenness

Both SAGE and Segetis are marketing their innovative products to break into large, established markets. To do this, both companies are strategically highlighting the performance of their products over the greenness.

“We have a truly green product that saves energy,” says Van Dine, “but we have intentionally avoided marketing it as green— we don’t want our product lumped in with a bunch of other green products. We want the performance of SageGlass to speak for itself.”

Similarly, Atul Thakrar, CEO of Segetis, says, “The chemical industry is firmly established, and we can’t assume people are going to pay a premium for a product simply because our product is green and sustainable, so we need to demonstrate superior performance that will differentiate us from the rest. For instance, using one of our products in paint enables manufacturers to create paints without VOCs [volatile organic compounds] while maintaining the performance of traditional paint.” The market value of products is largely based on product performance; greenness is a value-added benefit.

Marketing: Customer and Cost

While SageGlass is available for commercial and residential use, the cost is still significantly more than for standard windows, and SAGE’s marketing strategy takes that into account.

“You need to do market research to understand the price elasticity of your product,” says Van Dine, “and to understand who your real customers are. There are only certain parts of the marketplace that are appropriate for us to address today. It’s similar to when fiber optics was first introduced. Initially, it catered to the high end of the network, but as technology evolved and as the scale of manufacturing evolved, the product became available to a wider spectrum of customers.”

Once its new manufacturing facility is completed, SAGE will significantly increase its production capacity, enabling a more cost-competitive product.

In order for people to fully appreciate SageGlass, Van Dine says, they need to experience it firsthand. Therefore, SAGE designed a large mobile unit, fitted with SageGlass, that will travel the country. Architects and building owners will be invited to visit the mobile unit, experience SageGlass, and enjoy wine and cheese in the process.

Segetis is constrained by a lack of supply chain infrastructure (limited access to inexpensive feedstock) as well as a lack of commercial-scale manufacturing and distribution infrastructure. Therefore, the company also has a relatively high product cost. For this reason, Segetis decided to establish the market base of potential customers prior to seeking additional investment for infrastructure and enhanced manufacturing capabilities.

Says Thakrar, “Investors want to know, ‘Who will buy the end product and at what price?’ And we’re competing with the petroleum value-chain. They’ve been established for decades, and we’re just starting up. Therein is the challenge.”

To address this challenge, Segetis decided to work backwards by validating market demand and the value-added benefits of its products to better entice investors. Segetis determined the most promising applications for its products, identified markets where it could offer strong value-proposition with those applications, and then created custom samples for manufacturing customers to test for themselves as alternatives to existing petrochemical additives.

Working backwards can be time consuming and expensive, but it’s working. “We’ve had good interactions with customers,” Thakrar says, “and we’re now selling through our pilot plant.” The process demonstrates that there is a market for the products, helps determine cost curves and helps attract potential investors. The ultimate goal is to develop an integrated supply chain and to secure funding to produce these sustainable alternatives—from corn cobs¹ to the end products—here in the U.S.

Conclusion

The interviews for this article were initially conducted to better understand the difference between green entrepreneurs and traditional entrepreneurs. Surprisingly, these founders did not focus on greenness. While interested in sustainability, they nonetheless emphasized the quality and performance of their products. As Van Dine says, “There may be some differences between traditional entrepreneurs and green entrepreneurs, but they’re really at the margins. Foremost, you need to be a good business person. There are unknowns in green fields, but it’s hard to think of any meaningful business that doesn’t have unknowns. Legislation can change, regulations can change, the economy can change, what the world wants can change. All entrepreneurs need to be able to read the winds and understand where things are going.”

While green marketing may be the trend, some organizations feel the most promising way to break into established markets, regardless of how innovative and environmentally sustainable their products may be, is to highlight the same things businesses have highlighted for decades: performance and quality of product.

[1]In addition to corn cobs, other potential sustainable feedstock include cellulose-based materials such as wood, solid municipal waste and even some garbage.

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