(115a) Velocys Inc.: Advancing Technologies through Industrial Partnerships | AIChE

(115a) Velocys Inc.: Advancing Technologies through Industrial Partnerships


Velocys, Inc. is developing revolutionary processing systems that will provide energy and chemical companies with substantial capital cost savings, improved product yields, and greater energy efficiencies. By coupling catalyst advances with innovative microchannel processing hardware, Velocys is creating products that far surpass the performance of currently available systems, providing significantly higher return on capital than conventional technologies in two capital intensive industries ? energy and chemicals. Systems in development, including synthetic fuel production, address markets exceeding $5 billion. An important aspect of the company's success to date is the ability to form and maintain mutually beneficial relationships with multiple market leading industrial partners. Velocys is currently working with industry-leading companies, including Dow Chemical, Hexion, ABB Lummus, and Total S.A. These partnerships are beneficial to both parties. In exchange for funding the customization of the technology for their market, the industrial partner receives preferential access to Velocys' patented microchannel process technology, which holds the potential to dramatically improve the cost structure of their key products. In addition to the funding received, Velocys benefits from these partnerships in three primary ways: access to process specific knowledge from a market leading producer, elimination of distribution channel risk, and augmentation of intellectual property portfolio. The basis for forming any partnership is the value created for both the technology provider and industrial firm by the commercial incarnation of the technology. Once sufficient value is quantified and agreed upon by both parties, attention shifts to forging an agreement. Formation of an industrial partnership must decrease risk. While it sounds straight-forward, this axiom should be kept in mind during negotiations to avoid getting caught in situations that trade one set of risks (capital acquisition, access to distribution channels) for others (limited market reach due to exclusivity, intellectual property restrictions). The negotiation process can be complex, but time spent upfront can pay large dividends during the execution of the ultimate agreement. As challenging as industrial partnerships are to form, their initiation does not guarantee success. Alliance deals must be structured such that unexpected challenges, which are a recurring part of research and development projects, can be accommodated without risking the entire agreement. A key strategy for managing risk is establishing technical milestones and using these milestones for making decisions about the progress and direction of the joint development programs. Another effective strategy employed by Velocys to address these challenges is the establishment of two distinct committees, technical advisory and management. The former monitors technical progress, recommends corrective action, and advises upper management, while that latter administers the agreement and addresses business/market issues. This two tiered systems emphasizes the collaborative nature of the partnership. To date, Velocys' industrial partnerships have yielded over $80 million in funding and countless insights into how microchannel process technology can be integrated in commercial-scale plants. This support did not come with overly onerous restrictions; thereby, allowing the intellectual property created to be leveraged across multiple markets. This presentation will discuss the alliance structure at Velocys, keys to forming mutually beneficial partnerships, strategies for maintaining these partnerships, and the lessons learned over five years of operations.