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Startups urged to work together to develop algae biofuel industry

Developers of algae biofuel were told at a conference Thursday to form alliances, protect their intellectual property and not be afraid to accept government funding.

Lawyers from Wilson Sonsini Goodrich & Rosati; Fredrikson & Byron; and Van Ness Feldman updated an audience at the 2009 Algae Biomass Summit in San Diego on the latest regulatory, legal and financial trends in the burgeoning industry.

One way companies can protect their IP is through patent pools, where several companies form a consortia to share their patented technology.

It's a method that can make sense for an industry in its early stages, according to Michael Hostetler, a San Diego partner with Wilson Sonsini.

Each member of the consortia would have access to the technology by paying a nominal a license fee.

It could help eliminate the opportunity for patent trolls to take over the technology while ensuring the technology flourishes and is not in the hands of a few, Hostetler said.

Even if a company decides not to join a consortium, it's important for developers to form a strategic plan for protecting their technology, picking the right tool at the right time.

Hostetler said a lot can be learned from the pharmaceutical industry, which realized that vigorously guarding intellectual property can protect your market share and revenue stream.

Minneapolis attorney Todd Taylor said it's important for company founders to hire people who have knowledge they don't have, and the founders shouldn't try to do everything. They are not irreplaceable.

"A founder that refuses to give up control is almost a joke in the financial world," said Taylor, who is the lead shareholder in Fredrikson & Byron's renewable energy practice.

Chris Groobey, a Washington D.C. partner with Wilson Sonsini Goodrich & Rosati, agreed, adding that it's important to get the right management team in place with people who understand the industry.

Developers of algae biofuel also should take advantage of government contracts and funding, according to Wilson Sonsini's Hostetler.

There are various other sources of funding for fledgling companies depending on what stage of development at which they are.

Very early on, companies can look to personal resources, like family and friends, for funding.

Angel investors -- wealthy individuals -- will be helpful as part of the seed round as well.

Venture capitalists and strategic investors will provide money once a company's intellectual property gets closer to commercialization.

VCs, however, likely will request proof of the product's viability, like trial results, according to Fredrikson & Byron's Taylor.

While accepting funding, he said developers need to be aware of securities regulations. Even a loan from a friend can be subject to federal law.

Companies should be careful to avoid a broad or public appeal for funding, especially asking for money on social networking sites like Facebook and LinkedIn, according to Taylor. They could be in violation of securities rules.

Groobey, a project finance attorney with Wilson Sonsini, said it's important for the algae biofuel industry to avoid the mistakes made by the ethanol industry.

The corn-based industry was doing so well early that one of its companies was sold for $1 billion, which translated to $5 a gallon.

Not long after, however, another company went bankruptcy and its assets were sold for .65 cents a gallon.

"That's what we're trying to avoid, where it goes so high and goes so low," Groobey said. "We have to make lenders more comfortable."

Part of the problem was that corn prices rose dramatically, so he said the key is to keep the price of algae under control.

Another problem with biodiesel, Groobey said, was simply the result of a poor quality product.

"It (biodiesel) should have worked but it didn't," he said.

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