GevoThe purpose of this paper is to critically evaluate the business model of a “flagship” bio-based fuel and chemicals producer, Gevo. Several recurring themes guide the course of the analysis, to wit:

1. Is the scale of the business model appropriate?

2. Is the style in which the company has stated their case a problem?

3. Is the senior management a problem?

Company Overview1

Gevo, a leading renewable chemicals and advanced biofuels company, is developing bio-based alternatives to petroleum-based products using a combination of synthetic biology and chemistry. We plan to produce isobutanol, a versatile platform chemical for the liquid fuels and petrochemicals markets. Isobutanol has broad market applications as a solvent and a gasoline blendstock that can help refiners meet their renewable fuel and clean air obligations. It can also be further processed using well-known chemical processes into jet fuel and feedstocks for the production of synthetic rubber, plastics and polyesters.

Vision

We envision the development and commercialization of biorefineries that can connect the ethanol industry’s infrastructure and agricultural supply chain to the petrochemical industry’s infrastructure of existing refineries and pipelines. We hope to see biorefineries deliver low carbon solutions, provide renewed economic prosperity to rural areas and contribute to energy independence from fossil fuels.

Technology

We have pioneered a platform technology based on a proprietary fermentation method that relies on an innovative biocatalyst and the efficient separation of isobutanol. The combination of these two proprietary innovations, Gevo’s Integrated Fermentation Technology® (GIFT®), was designed to enable the low cost retrofit of existing ethanol capacity for isobutanol production. This provides Gevo a faster route to market. And, when cellulosic biomass processing technology is ready for commercialization, we plan to deploy cellulosic butanol technology.

Strategy

Our strategy is to develop technology for the production of a building block for bio-based fuels and chemicals that can be sold directly into existing refining and petrochemical value chains to provide customers with a bio-derived alternative to fossil fuels at a price that is competitive and less volatile than petroleum.

Manufacturing plan: A comparison of petroleum-based and bio-based fuels and chemicals manufacture.

Fig. 1 A simplified petroleum-based model:2

Fig 2 The Gevo bio-based plan:

Renewable resources:Sugarcane

CornLignocellulosic

Fermentors

Ethanol

Butanol

PetrochemicalsEthylene

Propylene Benzene

Butenes Butadiene

Dimers Xylenes Ethylbenzene

Pentene Isoprene

Fuels

Dimers Isooctane Trimers Jet Kerosene

Source: Adapted from patent application

Markets4

Relative to petroleum-based products, we expect that chemicals and fuels made from our isobutanol will provide our potential customers with the advantages of lower cost volatility and increased supply options for their raw materials. While we intend to focus on producing and marketing isobutanol, the demand for our product is driven in large part by the fact that our isobutanol can be converted into a number of valuable hydrocarbons, providing us with multiple sources of potential demand. We anticipate that additional uses of our isobutanol will develop rapidly because the technology to convert isobutanol into hydrocarbon products is known and practiced in the chemicals industry today.

Isobutanol for direct use

Without any modification, isobutanol has applications as a specialty chemical. Chemical-grade isobutanol can be used as a solvent and chemical intermediate. The global market for chemical-grade butanol is approximately 1.1 BGPY, based upon volume data from SRI.

Isobutanol also has direct applications as a specialty fuel blendstock. Fuel-grade isobutanol may be used as a high energy content, low Reid Vapor Pressure, or RVP, gasoline blendstock and oxygenate, which we believe, based on its low water solubility, will be compatible with existing refinery infrastructure, allowing for blending at the refinery rather than blending at the terminal. RVP measures a fuel's volatility, and in warm weather, high RVP fuel contributes to smog formation. Additionally, fuel-grade isobutanol can be blended in conjunction with, or as a substitute for, ethanol and other widely-used fuel oxygenates. The potential global market for fuel-grade isobutanol as a fuel oxygenate is approximately 40 BGPY, based on IEA volume data.

Isobutanol for the production of plastics, fibers, rubber and other polymers

Isobutanol can be dehydrated to produce butenes which have many industrial uses in the production of plastics, fibers, rubber and other polymers. The straightforward conversion of isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical in multiple markets.

Isobutanol can be converted into hydrocarbons which form the basis for the production of rubber, lubricants, and additives for use predominantly in the automotive markets. Producers in these markets are looking for new sources of drop-in hydrocarbons. These products represent a potential market for isobutanol of approximately 7.6 BGPY.

Isobutanol can also be converted into methyl methacrylate (MMA) which is used to produce plastics and industrial coatings for use in consumer electronics and automotive markets.

Producers of MMA are looking for new sources of raw materials. These products represent a potential market for isobutanol of approximately 739 MGPY.

Propylenes used in packaging, fibers, and automotive markets may also be made from isobutanol. Producers of propylenes are looking to find new sources of raw materials and bio-based alternatives that will allow them to market their products as environmentally friendly. These products represent a potential market for isobutanol of approximately 31.7 BGPY.

Isobutanol can also be used to produce para-xylene and its derivatives, including polyesters, which are used in the beverage and food packaging and fibers markets. Producers of these products are looking to find bio-based alternatives that will allow them to market their products as environmentally friendly. These products represent a potential market for isobutanol of approximately 15 BGPY.

Styrene and polystyrene can also be made from isobutanol for use in food packaging. Producers of these products are looking to find bio-based alternatives that will allow them to market their products as environmentally friendly. These products represent a potential market for isobutanol of approximately 12 BGPY.

Isobutanol for Hydrocarbon Fuels. The hydrocarbons that can be produced from isobutanol can be used to manufacture specialty gasoline blendstocks, jet and diesel fuel, as well as other hydrocarbon fuels. The hydrocarbon fuels that can be produced from isobutanol collectively represent a potential market for isobutanol of over 900 BGPY, based upon volume data from the IEA.

Senior Management4

Patrick R. Gruber, Ph.D. has served as a director of the company since 2007 and has served as Chief Executive Officer of the company since 2007. Prior to joining the company, from 2005 to 2007 Dr. Gruber was President and Chief Executive Officer of Outlast Technologies, Inc., a technology and marketing company primarily serving the textile industry, where he was responsible for all aspects of Outlast Technologies' business. Previously, Dr. Gruber had co-founded NatureWorks LLC (formerly Cargill Dow, LLC), a bio-based plastics company. He served as Vice President, Technology and Operations, and Chief Technology Officer there from 1997 to 2005, where he was responsible for all aspects of the business' project, application and process technology development. Dr. Gruber holds a Ph.D. in chemistry from the University of Minnesota, an M.B.A. from the University of Minnesota and a B.S. in chemistry and biology from the University of St. Thomas.

Christopher Ryan, Ph.D. has served as Executive Vice President, Business Development, of the company since June 2009. Prior to joining the company, he co-founded NatureWorks LLC, a bioplastics company, in 1997. Dr. Ryan served as Chief Operating Officer for NatureWorks from 2008 to 2009 and Chief Technology Officer for NatureWorks from 2005 to 2008, where he was involved in the development and commercialization of the company's new bio-based polymer from lab-scale production in 1992 through the completion of a $300 million world-scale production facility. Dr. Ryan holds a Ph.D. in organic chemistry from the University of Minnesota, a B.S. in chemistry from Gustavus Adolphus College and completed the Management of Technology program at the University of Minnesota.

David Glassner, Ph.D. has served as Executive Vice President, Technology, of the company since October 2009, where he leads the company's isobutanol technology and engineering development. From March 2009 to September 2009, he was Vice President, Technology, and from July 2007 through February 2009 he was Vice President, Bioprocessing and Engineering, of the company. Prior to joining the company, he led the development of novel yeast biocatalysts for the production of lactic acid and ethanol, and the development of lactic acid, lactide and polylactide technology at NatureWorks LLC from 2000 to 2007. Prior to NatureWorks, from 1993 to 1999 he was Biofuels Technology Manager at the National Renewable Energy Laboratory where he led the development of cellulosic processing technology and the construction of the biomass to ethanol process development unit. Dr. Glassner holds Ph.D., M.S. and B.S. degrees in chemical engineering from Michigan State University.

Headcount4

41 – R&D

23 - Admin & Selling (includes clerical workers)

27 – Manufacturing at Luverne

ANALYSIS

The recurring themes:

Scale: Gevo aspires to replicate many aspects of a petroleum firm’s downstream integrated refining and chemicals business. The enormous scale of their lofty goals is underscored by the following table.

Table 1: Gevo’s addressable markets and current supply arrangements, 11/1/2011Table 1: Gevo’s addressable markets and current supply arrangements, 11/1/2011Table 1: Gevo’s addressable markets and current supply arrangements, 11/1/2011Table 1: Gevo’s addressable markets and current supply arrangements, 11/1/2011

Billion Gallons per year (BGPY)

Market Size(BGPY)

Market Share, %

Supply Agreements:Supply Agreements:Supply Agreements:Supply Agreements:Lanxess,i-butanol, 10 yearsLanxess,i-butanol, 10 yearsLanxess,i-butanol, 10 yearsLanxess,i-butanol, 10 years 0.02 7.6 0.26Sasol, i-butanol, 3 yrs.Sasol, i-butanol, 3 yrs.Sasol, i-butanol, 3 yrs.Sasol, i-butanol, 3 yrs. 0.012* 1.1 1.09Mansfield oil, fuel, 5 yearsMansfield oil, fuel, 5 yearsMansfield oil, fuel, 5 yearsMansfield oil, fuel, 5 years n.a. n.a. n.a.

Non-binding Letters of Intent:Non-binding Letters of Intent:Non-binding Letters of Intent:Non-binding Letters of Intent:Total (2/2010): i-butanol, 5 years Total (2/2010): i-butanol, 5 years Total (2/2010): i-butanol, 5 years Total (2/2010): i-butanol, 5 years 0.01 40 0.02Toray (4/2010): p-xyleneToray (4/2010): p-xyleneToray (4/2010): p-xyleneToray (4/2010): p-xylene 0.003 15 0.02United Airlines(6/2010): jet fuelUnited Airlines(6/2010): jet fuelUnited Airlines(6/2010): jet fuelUnited Airlines(6/2010): jet fuel 0.153 94 0.16Propylene: Propylene: Propylene: 0 31.7 0Styrene: Styrene: Styrene: 0 12 0Methyl methacrylate:Methyl methacrylate:Methyl methacrylate: 0 0.007 0Isooctane: Gasoline 0 349 0Diesel fuel: 0 484 0TotalTotalTotalTotal 0.198 1034 0.019%*Volume from letter of intent; Source: Gevo prospectus4, press releases. *Volume from letter of intent; Source: Gevo prospectus4, press releases. *Volume from letter of intent; Source: Gevo prospectus4, press releases. *Volume from letter of intent; Source: Gevo prospectus4, press releases. *Volume from letter of intent; Source: Gevo prospectus4, press releases. *Volume from letter of intent; Source: Gevo prospectus4, press releases. *Volume from letter of intent; Source: Gevo prospectus4, press releases.

As the table suggests, their claimed addressable market is over 1 trillion gallons per year. Furthermore, the claims are to global markets in all of their addressable segments.

The table also suggests that Gevo has had some success in obtaining supply agreements. Those that have been obtained, both binding and non-binding, total to 198M gallons per year. Still, this volume represents less than .02% of their claimed addressable markets.

Gevo’s planned manufacturing capacity, outlined in the table below, doesn’t indicate that they will have the ability to improve much upon this market share in the next few years. For isobutanol, their planned manufacturing capacity is expected to reach 350M gallons by the end of 2015. But this is capacity for isobutanol manufacture. To address the fuels market, by far the largest of Gevo’s addressable markets, two other considerations must be taken into account.

First, Gevo’s capacity to produce the isobutanol derivatives necessary for fuels blending stocks lags significantly. As the table below suggests, they are just recently adding a demonstration scale plant capable of supplying fuel blending components in the C8-C12 range. And that capacity is 10,000 times less than their initial commercial-scale isobutanol plant.

Table 2: Gevo Planned Manufacturing CapabilitiesTable 2: Gevo Planned Manufacturing CapabilitiesTable 2: Gevo Planned Manufacturing CapabilitiesTable 2: Gevo Planned Manufacturing CapabilitiesTable 2: Gevo Planned Manufacturing CapabilitiesTable 2: Gevo Planned Manufacturing CapabilitiesIsobutanol: Commercial-scale plantsIsobutanol: Commercial-scale plantsIsobutanol: Commercial-scale plantsIsobutanol: Commercial-scale plantsIsobutanol: Commercial-scale plantsIsobutanol: Commercial-scale plantsPlants Acquire Retrofit Operational Total Production

CapacityYear

Luverne 2H2010 15 mos. 1Q2012 10M GPY 2012Redfield 2H2011 1H20133rd End 2013 60 M GPY 20134th-6th End 2014 200 M GPY 20147th-9th End 2015 350 M GPY 2015

Hydrocarbon processing: Demonstration scale plantHydrocarbon processing: Demonstration scale plantHydrocarbon processing: Demonstration scale plantHydrocarbon processing: Demonstration scale plantHydrocarbon processing: Demonstration scale plantHydrocarbon processing: Demonstration scale plantPlants Partner Build Operational Prod’n. YearHouston, Tx. 7/2011 Yes YE2011 120k GPY 2012

Demonstration plant will convert Gevo’s isobutanol into renewable jet fuel, gasoline, and p-xylene (for PET plastic); also is to supply other customers with product qualification and evaluation quantities. Source: ICIS5

Demonstration plant will convert Gevo’s isobutanol into renewable jet fuel, gasoline, and p-xylene (for PET plastic); also is to supply other customers with product qualification and evaluation quantities. Source: ICIS5

Demonstration plant will convert Gevo’s isobutanol into renewable jet fuel, gasoline, and p-xylene (for PET plastic); also is to supply other customers with product qualification and evaluation quantities. Source: ICIS5

Demonstration plant will convert Gevo’s isobutanol into renewable jet fuel, gasoline, and p-xylene (for PET plastic); also is to supply other customers with product qualification and evaluation quantities. Source: ICIS5

Demonstration plant will convert Gevo’s isobutanol into renewable jet fuel, gasoline, and p-xylene (for PET plastic); also is to supply other customers with product qualification and evaluation quantities. Source: ICIS5

Demonstration plant will convert Gevo’s isobutanol into renewable jet fuel, gasoline, and p-xylene (for PET plastic); also is to supply other customers with product qualification and evaluation quantities. Source: ICIS5

Second, 350 million gallons of isobutanol does not yield 350 million gallons of fuel equivalents. Because it must be dimerized and trimerized to create motor gasoline and diesel/jet fuel blending components (see table below)…

Table 3: Fuel equivalent of isobutanolTable 3: Fuel equivalent of isobutanolTable 3: Fuel equivalent of isobutanolTable 3: Fuel equivalent of isobutanolTable 3: Fuel equivalent of isobutanolFuel Market,

BGPY% of total

fuel marketConversion

ratio, isobutanol

to fuel

Equivalent of 350M GPY isobutanol in fuel

Isobutanol 40 4.5 1:1 16Isooctane 349 35.5 2:1 62Jet 94 10.0 3:1 12Diesel 484 50.0 3:1 58

Total 967 100.0 148

…350 million gallons of isobutanol might (conservatively, 100% conversion rate assumed), yield about 148 million gallons of motor gasoline and diesel/jet fuel blending components.

Compare this to their competition on the petroleum-based manufacturing side. Gevo’s 148M GPY of equivalent fuel capacity would rank them just slightly ahead of Lunday Thagard, 58th on the list of 65 US refiners, with 0.05% of the US market. They would have approximately 0.01% of the global market.

Table 4: US, Worldwide Refining Capacity (2010) Table 4: US, Worldwide Refining Capacity (2010) Table 4: US, Worldwide Refining Capacity (2010) Table 4: US, Worldwide Refining Capacity (2010) Table 4: US, Worldwide Refining Capacity (2010) Table 4: US, Worldwide Refining Capacity (2010) FirmFirm United StatesUnited States WorldwideWorldwide

BGPY % of market

Global % of market

ConocoPhillips 31.12 11.48% 46.28 3.39%Valero 29.69 10.95% 40.58 2.97%ExxonMobil 26.92 9.93% 89.24 6.54%Marathon 18.37 6.77% 19.13 1.49%BP 16.97 6.26% 27.76 2.03%Chevron 14.50 5.35% 23.79 1.74%Flint Hills 12.54 4.62% 12.54 0.09%Shell Oil 12.46 4.60% 53.01 3.89%Motiva 12.00 4.43% 12.00 0.87%Citgo 11.41 4.21% 11.41 0.84%Tesoro 10.59 3.91% 10.59 0.78%Sunoco 7.82 2.88% 7.82 0.57%PDVSA 5.27 1.94% 51.80 3.80%PBF Energy 4.91 1.81% 4.91 0.36%Hess 4.74 1.75% 4.74 0.35%Lyondell 4.14 1.53% 4.14 0.30%Husky Oil 3.65 1.35% 5.37 0.39%Western Refining 3.40 1.26% 3.40 0.25%Total 2.67 0.98% 42.07 3.08%Frontier Oil 2.64 0.97% 2.64 0.19%Murphy Oil 2.42 0.89% 2.42 0.18%Alon USA 2.35 0.86% 2.35 0.17%Sinclair 2.08 0.77% 2.08 0.15%Holly Corp. 1.92 0.71% 1.92 0.14%Coffeyville ResourcesCoffeyville Resources 1.72 0.63% 1.72 0.13%Suncor 1.53 0.57% 1.53 0.11%Stratnor 1.53 0.57% 1.53 0.11%Petrobras 1.53 0.57% 34.40 2.52%

NuStar 1.36 0.50% 1.36 0.10%Krotz Springs 1.30 0.48% 1.30 0.09%NCRA 1.24 0.46% 1.24 0.09%Cenovus 1.12 0.41% 1.12 0.08%Wynnewood 1.10 0.41% 1.10 0.08%Delek Refining 1.10 0.41% 1.10 0.08%Lion Oil 1.07 0.40% 1.07 0.08%Northern Tier EnergyNorthern Tier Energy 1.07 0.40% 1.07 0.08%United Refining 1.07 0.40% 1.07 0.08%PetroStar 1.03 0.38% 1.03 0.07%Calumet Lubricants 0.86 0.32% 0.86 0.06%Hunt Refining 0.80 0.29% 0.80 0.06%Paramount PetroleumParamount Petroleum 0.77 0.28% 0.77 0.06%Ergon 0.64 0.24% 0.64 0.05%Big West Oil 0.54 0.20% 0.54 0.04%US Oil and Refining 0.54 0.20% 0.54 0.04%HDG Intl 0.48 0.18% 0.48 0.04%Calcasieu Refining 0.46 0.17% 0.46 0.03%Kern Oil 0.38 0.14% 0.38 0.03%Little America RefiningLittle America Refining 0.38 0.14% 0.38 0.03%San Joaquin 0.37 0.14% 0.37 0.03%CountryMark Co-op 0.35 0.13% 0.35 0.03%Gulf Atlantic 0.26 0.10% 0.26 0.02%Hunt Southland 0.26 0.10% 0.26 0.02%Thomas 0.21 0.08% 0.21 0.02%Silver Eagle Refining 0.20 0.07% 0.20 0.01%Wyoming Refining 0.18 0.07% 0.18 0.01%Greka Energy 0.15 0.06% 0.15 0.01%American refining 0.15 0.06% 0.15 0.01%Lunday Thagard 0.14 0.05% 0.14 0.01%Montana Refining 0.14 0.05% 0.14 0.01%Cenex 0.14 0.05% 0.14 0.01%Placid Refining 0.12 0.05% 0.12 0.01%Cross Oil 0.11 0.04% 0.11 0.01%Somerset 0.08 0.03% 0.08 0.01%Tenby 0.05 0.02% 0.05 0.004%Foreland 0.03 0.01% 0.03 0.002%Total US 271.16 100.00% 532.45 39.03%Total Worldwide 271.16 19.87% 1364.20 100.00%Source: Wikipedia list of refineries and capacities, 20106Source: Wikipedia list of refineries and capacities, 20106Source: Wikipedia list of refineries and capacities, 20106Source: Wikipedia list of refineries and capacities, 20106Source: Wikipedia list of refineries and capacities, 20106Source: Wikipedia list of refineries and capacities, 20106

There are several potential problems associated with this strategy. First, if you are a believer in scale and market power as conferrers of competitive advantage, the numbers are hardly encouraging.

Furthermore, not only is Gevo’s volume tiny by comparison, it’s starting from a very small base and growing at a comparatively slow rate. To attain even 1% of the global fuels market, Gevo would need to produce some 9.7B GPY of fuels. Thus, growing at its current rate of plant construction

350M GPY of isobutanol manufacturing capacity added every five years… equals the added capacity to supply about 136M GPY of fuels every five years… equals the added capacity to supply about 27M GPY of fuels every year… equals 359 years! to be able to supply a 1% share of the global fuels market.

Furthermore, the global fuels market could change fundamentally long before such lofty goals are met. Transportation powered by competing disruptive technologies such as electricity, fuel cells, solar cells, hydrogen (and their hybrids) all could shift the fuel requirements of transportation away from the traditional fuels Gevo currently targets. And this could occur well before they can achieve significant market shares. Finally, there are some pending questions about whether the industrial biotechnology model proffered by Gevo scales well to large markets such as fuels and commodity chemicals that must also be answered. For if individual bioreactors continue to be limited to about 600k liters in capacity by transport phenomena, then the sheer number of bioreactors (and the attendant infrastructure/hierarchy to manage them) needed to service such global market shares is daunting. For example, if Gevo’s 9 bioreactors can produce 350M GPY of isobutanol by 2015, then

Nine of them can produce approximately 136M GPY of fuels…and it would take 71 times as many (640 reactors) to produce 1% of the global fuel supply. Management Style. If your strategy bent leans towards the resource-based view rather than I/O economics, Gevo’s strategy may still have room for improvement. For such large market claims, and the lack of manufacturing capacity to support them, certainly might do damage to the reputation of this firm.

There are considerations beyond manufacturing capacity that shed doubt upon the scale of Gevo’s claims too. For example, the total headcount at ExxonMobil (2010), for example, is 103,7007. Granted, the firm engages in upstream activities such as exploration and production,

and downstream activities such as retail, and still other activities that Gevo shuns. Nevertheless, even if 1/5 of the workforce at ExxonMobil were dedicated to refining and chemicals production, this implies that some 20,500 people are involved in these activities.

Gevo, by comparison, has a total headcount of 914. Of that total, 23 are engaged in administration (including clerical) and selling activities. Clearly, to reach the scale of an ExxonMobil, Gevo’s headcount is not only inadequate but must also be increased at a rapid rate. And the resources would need to be found to do that.

Neither does Gevo’s financial situation suggest that it is about to dominate all of its addressable markets anytime soon.

Sources of cash:

1. The company is currently (Nov. 2011) sitting on about $90M owing to its recent IPO

2. It is realizing ethanol sales ($46.7 million through 3Q2011), however, its gross margins (3.6%) on this revenue are generating only minimal amounts of cash ($1.7M through 3Q2011).

3. It has the following plans, partially based upon its supply agreements, to generate cash by selling isobutanol:

Table 5: Gevo’s projected cash generation for isobutanol sales, 2011-15Table 5: Gevo’s projected cash generation for isobutanol sales, 2011-15Table 5: Gevo’s projected cash generation for isobutanol sales, 2011-15Table 5: Gevo’s projected cash generation for isobutanol sales, 2011-15Table 5: Gevo’s projected cash generation for isobutanol sales, 2011-15Year Volume Assumed price Assumed cash

costCash generation

2012 10 M gal $3.50-4.00/gal $1.60/gal $21M2013 60 M gal $3.70-4.00/gal $1.60/gal $129M2014 200 M gal $3.50-4.00/gal $1.60/gal $430M2015 350 M gal $2.95-4.40/gal $1.60/gal $665M

Total 620M gal $1245MSource: ICIS5Source: ICIS5Source: ICIS5Source: ICIS5Source: ICIS5

The margins cited above by Gevo are encouraging. In fact, Gevo claims a $1.00/gal advantage in cash costs versus petroleum-based isobutanol manufacturers. This, of course, could be due to a number of temporary or longer-lived factors: tightness in C4 supplies, lower raw material prices, first-mover advantage, etc. And some will be addressed in the discussion to follow. Suffice it to

say here that it is not the author’s intention to imply that Gevo will be uncompetitive in the isobutanol area per se.

4. Gevo’s stock, an IPO at $15 per share in Feb. 2011, currently sits at about $7.50 per share. Though it’s not out of the question, clearly public financing now would not raise capital at the rate which was realized in their IPO. Furthermore, it would dilute the ownership of those who had bought during the IPO.

5. Gevo’s debt ratios are not exorbitant. At the end of the third quarter it reported total debt of about $30M, total assets of about $133M ($98M of which was in cash), and shareholders’ equity of about $103M8. A more mature firm would likely have less problem raising debt financing, however the recently IPOed Gevo is stilling burning through $40M per year in operating costs. This traditionally raises some doubts as to whether a firm can service more debt. Too, the debt Gevo has been able to accumulate carries a high interest rate and substantial covenants. For example its current loans, agreements it entered into to enable it to purchase of Agri-Energy (including its Luverne, Mn. Plant), contained the following provisions4:

“The aggregate amount outstanding under the loan and security agreement bears interest at a rate equal to 13%, is subject to an end-of-term payment equal to 8% of the amount borrowed and is secured by substantially all of the assets of Gevo, Inc., other than its intellectual property. Additionally, under the terms of each of (i) the loan and security agreement and (ii) Gevo, Inc.'s guarantee of Gevo Development's obligations under the loan and security agreement described below, Gevo, Inc. is prohibited from granting a security interest in its intellectual property assets to any other entity until both TriplePoint loans are paid in full. The loan matures in four years, and provides for interest only payments during the first 24 months. Upon the consummation of the Agri-Energy acquisition, this loan will also be secured by all of

the assets of Agri-Energy, LLC.”

Additional debt financing, though not out of the question, would clearly come at a price.

Uses of Cash:

Against these money-raising options, Gevo will still have the following needs for cash:

1. Operations: As mentioned previously, Gevo is currently burning through about $40M per year. To cover this, if this continues, Gevo will need an additional $170M between now and the end of 2015.

2. Plants: Gevo plans on obtaining 7-8 more isobutanol plants by 2015. Retrofit for the first, a relatively small, approximately 100kL facility which is slated to produce only about 10M GPY, cost about $24M. Debt and warrants totaled another $21M for a total of about $45M capital4.

Subsequent plants will be larger (approx. 5x more or 50M GPY). Gevo estimates retrofit cost for a 100M GPY plant to run about $40-$45M4 while the capital needed to obtain the larger plants will almost certainly be more than the smaller initial plant. A very crude estimate suggests that 7-8 more isobutanol plants might require in the neighborhood of $700M.

Too, there are the commercial facilities necessary to produce the derivatives (fuels and chemicals) upon which 993B GPY of the projected 1,034B GPY in sales are predicated. There is no current estimate available from Gevo for the capital required to put these commercial-scale plants in place. However, if the isobutanol plants alone cost in the neighborhood of $700M, it’s not unreasonable to expect that these commercial-scale plants would soak up whatever remains of the projected profits from isobutanol sales.

3. Working Capital: As with any growing business, there will be increased working capital requirements as well. While these requirements may not be nearly as large as those required for manufacturing facilities, they still must be factored in.

Conclusion: Gevo alone would likely not be in a financial position to accelerate its growth rate beyond that which it has currently projected in the next four years. However, it could possibly accelerate growth if it were willing to engage in strategic alliances to obtain the needed resources/facilities.

Patent Infringement Suit

Yet other considerations further impair the reputation of this young firm. Consider the following:

WILMINGTON, Delaware, January 14, 2011 -- Butamax™ Files Patent Infringement Action Against Gevo, Inc. to Protect Biobutanol Intellectual Property9

Butamax™ Advanced Biofuels, LLC today filed a patent infringement lawsuit against Gevo, Inc for its use of Butamax biobutanol technology. Butamax patent 7851188 was granted in December, 2010. This patent encompasses biocatalysts developed to produce isobutanol and provides protection for Butamax and its pioneering work in this field. Butamax has filed an extensive patent portfolio for its proprietary technology across the biofuels value chain including biocatalyst, bioprocess and fuels. A number of patent applications by Butamax have been successfully accepted into the United States Patent and Trademark Office (USPTO) Green Technology Pilot Program for accelerated review.

“The U.S. patent system is designed to encourage research and development and to protect inventions. Butamax and its owners were the first to develop this technology and it is our belief that the protection of intellectual property serves the best interest of the biofuels industry, our customers and the U.S. energy policy,” said Tim Potter, Butamax CEO.

Butamax™ Advanced Biofuels, LLC was formed to develop and commercialize biobutanol as a next generation renewable biofuel for the transport market. The company benefits from the synergy of DuPont’s proven industrial biotechnology experience and BP’s global fuels market knowledge. Butamax’s patent-protected technology offers a cost-advantaged manufacturing process with value from field to pump. Globally focused with operations on four continents, Butamax is poised for commercial launch from 2012/2013.

ENGLEWOOD, Colo., Mar 25, 2011 (BUSINESS WIRE) -- Gevo Denies All Claims of Infringement in the Butamax Patent Infringement Complaint:

Gevo, Inc., a renewable chemicals and advanced biofuels company, today filed its answer in Delaware District Court to the patent infringement complaint filed on January 14, 2011 by Butamax Advanced Biofuels LLC, which alleges that Gevo is infringing one patent that has been assigned to Butamax relating to the production of isobutanol.

"Our answer, filed in Delaware district court, formally denies all claims of infringement, as we use Gevo's Integrated Fermentation Technology(R) (GIFT(R)), which is covered by over 150 patent applications, and is a different approach than the one described in the Butamax patent," said Brett Lund, Gevo Executive Vice President and General Counsel. "We will vigorously defend against the claims asserted in the complaint."

Could Gevo’s aggressive market claims have had something to do with this suit? Or could the following have provoked a reaction from its competitors?

Gevo Patent Application #201101724753

BACKGROUND OF THE INVENTION Conventional transportation fuels and chemicals (e.g., monomers, polymers, plasticizers, adhesives, thickeners, aromatic and aliphatic solvents, etc.) are typically derived from non-renewable raw materials such as petroleum. However, the production, transportation, refining

and separation of petroleum to provide transportation fuels and chemicals is problematic in a number of significant ways.

For example, petroleum (e.g., crude oil and/or natural gas) production poses a number of environmental concerns. First, the history of petroleum production includes many incidents where there have been uncontrolled releases of crude petroleum during exploration and production (e.g., drilling) operations. While many of these incidents have been relatively minor in scale, there have been a number of incidents that have been significant in scale and environmental impact (e.g., BP's Deepwater Horizon incident, Mississippi Canyon, Gulf of Mexico, 2010).

World petroleum supplies are finite. Thus, as world petroleum demand has increased (84,337 M bpd worldwide in 2009 ; US Energy Information Administration ), easily accessible reserves have been depleted. Accordingly, petroleum exploration and production operations are more frequently conducted in remote and/or environmentally sensitive areas (e.g., deepwater offshore, arctic regions, wetlands, wildlife preserves, etc.). Some remote locations require highly complex, technically challenging solutions to locate and produce petroleum reserves (e.g., due to low temperatures, water depth, etc.). Accordingly, the potential for large-scale environmental damage resulting from uncontrolled discharge of petroleum during such complex, technically challenging exploration and production operations is substantively increased.

In addition, when petroleum is produced in remote areas and/or areas which do not have infrastructure (e.g., refineries) to further process petroleum into useful products, the produced petroleum must be transported (e.g., via pipeline, rail, barge, ship, etc.), often over significant distances, to terminal points where the petroleum products may be refined and/of processed. Transportation of petroleum is also an operation with associated risk of accidental discharge of petroleum in the environment, with concomitant environmental damage, and there have been a number of significant incidents (e.g., Exxon's Valdez tanker spill, Prince William Sound, Ak., 1989). Furthermore, much of the world's proven petroleum reserves are located in regions which are politically unstable. Accordingly, supplies of petroleum from such regions may be uncertain since production of petroleum or transportation of petroleum products from such regions may be interrupted.

Comments:

Upon reflection, the reader of this intro might call it a rather harsh, biased viewpoint of Gevo’s supposed advantage. For example, the record of the oil industry is not being compared to that of any other industry in this introduction. In fact, it would be very difficult to make such a comparison given the data offered.

Second, the evidence cited is largely anecdotal. Perhaps a comparable approach would be to admonish Gevo for its foray into hazardous chemical production because of incidents such as Bhopal, Times Beach, Love Canal, or the existence of Superfund sites?

Third, it’s likely there are accidents in the cultivation and harvest of renewable resources just as there are in the production and transportation of crude oil. And fourth, while the text poses risks

to remote environments in oil exploration and transportation, risks of accidents may actually be moved closer to humans if renewable resources are harvested and cultivated.

The point is (1) that the advantage is not clearly stated, (2) Gevo may have presented their position in a very biased manner, and (3) perhaps needlessly so.

Senior Management:

Given the plethora of problems cited above, it would be hard not to question the senior management at Gevo. In addition, one should note here also that the three key members of senior management do not come from backgrounds in the fuels or commodity chemicals businesses. Rather, they are all alumni of NatureWorks, a former Dow/Cargill joint venture, whose claim to fame is the introduction of a bio-based plastic, poly (lactic acid). It is puzzling why all three should be selected to lead such a large scale, prominent foray into fuels and commodity chemicals.

What could be done?

1. Focus!

-On areas in which Gevo has a competitive advantage-On areas in which Gevo’s best opportunities lie. -To relieve the resource shortfalls that attend such expansive goals.-To improve the credibility/reputation of the firm.

Examples:

a.) Ethanol. Should this firm be in the ethanol business? In its own promotions for isobutanol, Gevo has already argued that isobutanol is superior to ethanol in a number of ways. Also, the ethanol margins Gevo is currently reporting are not impressive.

Finally, there are the following personnel issues4:

David Black is Executive Vice President of Upstream Business Development for Gevo and is responsible for structuring and executing joint ventures with and acquisitions of industrial production assets. Mr. Black has extensive experience in ethanol and clean technology transactions. Prior to joining Gevo, Mr. Black was a co-founder and co-managing partner of ClearDevelopment Partners, a renewable energy and clean technology project development company. In 2004 he co-founded, developed, financed, and operated AS Alliances Biofuels, LLC (ASAB), an ethanol production company that was later sold for $725 million. He served as Chief Executive Officer of ASAB from 2005 to 2006. Prior to ASAB, Mr. Black was a partner with Deloitte and Touche where he served as co-head of the national corporate finance consulting practice. Mr. Black received an M.B.A. from Southern Methodist University and a B.S. in finance from Arizona State University.

Michael Slaney is Executive Vice President of Upstream Business Development for Gevo and is responsible for structuring and executing joint ventures with and acquisitions of industrial production assets. Mr. Slaney has extensive experience in ethanol and clean technology

transactions. Prior to joining Gevo, Mr. Slaney was a co-founder and co-managing partner of ClearDevelopment Partners, a renewable energy and clean technology project development company. In 2004, he co-founded, developed, financed, and operated AS Alliances Biofuels, LLC (ASAB), an ethanol production company that was later sold for $725 million. He served as Chief Operating Officer of ASAB from 2005 to 2006. Prior to ASAB, Mr. Slaney was a partner in the corporate section of Akin Gump Strauss Hauer & Feld LLP specializing in M&A and joint venture transactions and worked for large public accounting (KPMG, LLP) and investment banking (Kidder Peabody & Co.) firms. Mr. Slaney received a J.D. from Indiana University and a B.S. in accounting and business administration from the University of Kansas.

The two have no technology degrees. Furthermore, it’s hard to understand what “Upstream” is in a bio-based fuel and chemical business?

b.) Ethylene. Perhaps the raison d’être for the Gevo ethanol business, since Gevo’s patent application #20110172475 claims the capacity to produce ethylene from ethanol? But why would producing ethylene be attractive in the current US market?

“Natural gas is currently down fully 75% from its 2008 high while crude oil is down only 33%. Natural gas hasn't been this cheap relative to crude for decades, thanks to significant new drilling techniques (horizontal drilling, fracking) which have resulted in a natural gas production bonanza in the U.S."10

Consequently in the U.S., with natural gas prices having diverged from petroleum prices, cracking ethane/propane has become more attractive. This produces proportionately more ethylene (C2s) and proportionately less heavier molecules (including C4s). This might create lower ethylene prices but create supply tightness and supply opportunities, in the U.S. at least, in C4s. Thus, if the trend continues, it would seem that Gevo’s opportunity would lie with its strength, in C4 molecules in the U.S., not in ethylene.

For these reasons, occupying positions in the ethylene, propylene (by metathesis), and benzene businesses just do not seem consistent with Gevo’s strengths and opportunities.

c.) Other commodity chemicals. To quote Gevo’s prospectus4: “It (isobutanol) can also be further processed using well-known chemical processes into jet fuel and feedstocks for the production of synthetic rubber, plastics and polyesters.”

If the processes that produce fuel and chemical derivatives of isobutanol are well-known, it is hard to understand how such processes could provide an advantage for Gevo. Moreover, given the capital-intensive nature of this business and the paucity of resources with which Gevo has attacked this large market, larger, better-capitalized fuel and chemical companies might be better positioned to play in this space. In fact, Gevo has been financing R&D internally too to develop these “well-known” processes, resources that could be redirected toward endeavors (isobutanol) which still require more resources.

d.) Fuels. Fuels constitute over nine-tenths of Gevo’s addressable claimed market by volume! Again, this is also a capital-intensive business inhabited by several large firms possessing scale and resource advantages over Gevo. Too, the molecules required to service this market are far-removed from a strong Gevo advantage: bio-based butanol. In fact, Gevo has to add three extra steps – from isobutanol to butylenes, from butylenes to dimers and trimers, and then dehydrogenation of these molecules to get the fuel blending components3.

Rather the strongest, and as yet minimally developed opportunity Gevo has, lies in isobutanol. By their calculations the demand for iso-butanol blended directly into fuel is still pretty large (40MGPY). Furthermore, Gevo has patents that might protect them in this space, depending, of course, on the results of their current lawsuit with Butamax.

For a small company with limited resources, it might make more sense to focus upon the opportunity in isobutanol first. Once a decent-sized business is built there (and that still may take a while!), once Gevo has demonstrated the ability to execute a plan that achieves this kind of goal, once Gevo secures some sort of advantage in this space, and once it has built the necessary managerial resources to take it further, then it might be more appropriate for Gevo to think seriously about other businesses.

Leadership

It is possible that spending several years in bio-based plastics might have allowed Gevo’s 3 key, former NatureWorks executives to obtain some experience and form some relationships that would allow it to procure feedstocks effectively. Surprisingly, this aspect of the Gevo story has not received as much attention in their prospectus and press releases.

However, it is not likely that the presence of all three is necessary to do so. Rather, some diversification of the experience of the top management team seems in order. Specifically, incorporating experience in the fuels and commodity chemicals markets seems needed.

Conclusion:

Evidence has been presented above that supports the notion that Gevo, a flagship bio-based fuels and commodity chemicals producer in the U.S., has opportunities to improve its strategic direction. Its claimed addressable market is wildly optimistic and, in fact, Gevo is incapable of addressing any more than .01% of the global market for fuels and commodity chemicals it claims within the next four years. Strategic problems associated with this position may include

• A lack of scale or market power,

• Preemption by competing, disruptive technologies due to slow growth, and

• An underlying problem with applying industrial biotechnology models to large industries (e.g., fuels).

The evidence presented above also establishes a pattern of management communications coursing across many different activities, a “management style” if you will, that is inconsistent with building a sustainable competitive advantage via a good, fundamentally sound reputation. Evidence for this claim includes

• Wildly expansive claims to markets without commensurate resources to back them up,

• A patent infringement suit, and

• Inflammatory, potentially unnecessary claims about petroleum-based competition.

Finally, the evidence presented above suggests deficiencies in senior management that may have caused Gevo to overlook some strategic aspects of their proposed business, including

• Lack of experience in fuels or commodity chemicals, the proposed markets for Gevo, among key senior executives,

• Lack of technological sophistication among some members of senior management,

• Cronyism among three former NatureWorks executives,

• An overall strategy that seems to run counter to certain opportunities and/or Gevo strengths, and

• A stock price that has withered since Gevo’s splashy IPO less than a year ago.

It is possible that Gevo’s claimed cost advantage in isobutanol could overshadow any or all of the aforementioned problems. However, it’s also possible that the factors that create such an advantage are temporary. Either way, such an advantage may not constitute a justification for neglecting the problematic aspects of Gevo’s strategy mentioned in this treatise. Thus, it is the recommendation of the author that Gevo’s strategy might more profitably focus on the strengths Gevo possesses and its opportunities that are consistent with such strengths rather than on the more expansive approach it currently espouses.

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Appendix

GevoFinancial Statements 4,8,11Financial Statements 4,8,11Financial Statements 4,8,11Financial Statements 4,8,11Financial Statements 4,8,11Financial Statements 4,8,11Financial Statements 4,8,11Financial Statements 4,8,11Financial Statements 4,8,11

k$k$k$k$k$k$k$k$k$

Income Statement (6 mos.) (9 mos.)2005 2006 2007 2008 2009 2010 2011 Total

Year 1 2 3 4 5 6 7Revenues

Grant revenue 0 100 275 208 660 1493 572 3308Licensing revenue 0 0 0 0 0 138 0 138Ethanol sales and rel.products 0 0 0 0 0 14765 46748 61513

Total Revenues 0 100 290 208 660 16396 47320 64959

Cost of Goods Sold 0 0 0 0 0 13446 45062 58508

Gross profit 0 100 290 208 660 2950 2258 6451 as % of revenues 0 100% 100% 100% 100% 22% 5% 10%

Operating Expenses: Research &Development 161 902 3699 7376 10508 14820 13815 51281 General, Selling, & Admin. 99 328 2601 6065 8699 23643 20001 61436 Lease termination cost 0 0 894 0 0 0 0 894 Loss on assets aband. or disposed 0 0 243 78 22 0 11 354Total Operating Expenses 260 1230 7437 13519 19229 38463 30546 113965

Loss from Operations 260 1130 7162 13311 18569 35513 31569 107514

Other Income/Expenses: Interest expense 0 0 140 1385 1103 2374 2541 7543 Interest income 1 20 76 154 277 108 85 721 Loss, fair value warrant liab. 0 0 0 0 490 2333 29 2852Net Other Income/Expenses (1) (20) 64 1231 1316 4599 2485 9674

Net Loss 259 1110 7226 14542 19885 40112 34054 117188

Balance Sheet (9 mos.)K$ 2005 2006 2007 2008 2009 2010 2011Year 1 2 3 4 5 6 7Current Assets:

Cash & Equiv. 183 1005 63 9635 21240 15274 97605Accts. Receivable 99 2830 2749Inventory 3765 4794Prepaid expense/other 40 163 1040 1287Derivative asset 35 40 361 1370Margin Deposit 624 0Total Current Assets 228 1776 2391 9710 21542 23894 107985

Fixed Assets:Property, Plant & Eqpt. (Net) 3132 4632 23465 24372Deferred Offering Cost 3152 0Debt issue Cost 929 692Deposits and Other Assets 252 209 169 130Total Fixed Assets 27175 25194

Total Assets 228 1776 2391 13094 26383 51069 133179

Liabilities & Shareholders’ EquityCurrent Liabilities:Accts. payable 1644 2521 7903 10219Current portion of L/T debt 1769 1785 1747Derivative liability 405 0Fair Value of warrant liability 982 2034 0Total Current Liabilities 3413 3503 12127 11966

Long-Term Liabilities:Secured Long-Term Debt 1579 6409 7701 18647 17671Other Liabilities 114 96 876 247Total Long-term Liabilities 19523 17918

Total Liabilities 44 205 3029 9936 11300 31650 29884

Shareholders’ EquityConvertible Preferred Stock 80 126 146 0 Preferred Stock 0 0 Common Stock 12 12 12 260Additional Paid-In Capital 26203 57382 105128 223510Earnings Deficit 259 1369 8595 23137 42437 85327 120475Total Stockholders’ Equity 184 1571 -638 3158 15083 19959 103295

Total Liabilities & Shareholders’ Equity 228 1776 2391 13094 26383 51609 133179

Cash Flow Statement (9 mos.)K$ 2005 2006 2007 2008 2009 2010 2011 Total

1 2 3 4 5 6 7

Net Income -7226 -14542 -19885 -40112 -34054-11718

8

Operating Activities: Depreciation & Amortization 240 678 1511 3188 3372 9064 Stock-based compensation 55 207 945 10511 4897 16617 Stock expense (license agreement) 10 0 0 0 0 10Debt disc. to noncash interest exp. 54 1102 235 762 625 2778Loss, fair value of warrant liab. 0 0 490 2333 29 2852Loss (gain) from change in derivative -561 -1414 -1975Loss, aband., disposal of fixed assets 243 78 22 0 11 354Decrease (increase) in A/R -33 33 -99 -732 81 -750Decrease (increase)Prepaid expenses -253 247 -128 47 -535 -652Decr. (incr.) Deposits and other assets -205 147 4 1 0 -90 Increase (decrease) in A/P 1246 309 806 3594 1813 7975 Decrease (increase) in inventory -195 -1209 -1404 Margin Deposit 0 624 892Net Cash Flow from Operations -5869 -11741 -16099 -20896 -25760 -81517

Investing Activities:Acq. of plant, property, & eqpt. -1341 -2630 -2982 -806 -3580 -11820Acq. Of Agri-Energy (incl. Luverne plt) -24936 0 -24936Proceeds from sale of PP&E 0 5 0 0 0 5Restricted CD -218 40 40 40 40 -79Net Cash Flow from Investment -1559 -2315 -2942 -25702 -3540 -36830

Financing Activities: Dividends Paid 0 0 0 0 0 0 Sale (repurchase) of stock 0 6 0 16 114725 114947 Sale (repurchase) of preferred stock 5000 13957 32500 31564 86025 Sale of conv. promissory note 0 3000 0 0 3000 Sale of warrants 0 0 0 0 1 Proceeds from exercise of warrants 592 592 Increase (decrease) in debt 1568 7396 114 17500 0 9078 Principal pmts. On L/T debt 0 -521 -622 -5250 -1402 -7795

Payment of stock issuance cost -82 -210 -1346 -153 -1867 Debt issuance cost -1033 -1033 Deferred offering cost 0 0 0 -2604 -1692 -4296Net Cash Flows from Financing 6486 23628 30646 40632 111631 215952

Net Increase (decrease) in cash 9572 11605 -5966 82331 97605

Bibliography

1. http://www.gevo.com, 11/24/2011

2. http://www.eoearth.org/article/Petrochemicals?topic=49557

3. Adapted from U.S. patent application #20110172475

4. http://www.gevo.com, Form S-1 Registration (prospectus for IPO)

5. http://www.icis.com/cgi-bin/mt/mt-search.cgi?search=Gevo&IncludeBlogs=148&limit=20; 9/13/2011

6. http://en.wikipedia.org/wiki/List_of_oil_refineries

7. http://money.cnn.com/magazines/fortune/global500/2011/snapshots/387.html

8. http://www.gevo.com, 3Q earnings, press release

9. http://www.butamax.com/_assets/pdf/butamax_press_release_140111.pdf

10. http://mjperry.blogspot.com/2011/11/two-charts-on-natural-gas-vs-oil-prices.html

11. http://www.gevo.com, Annual Report, 2010