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No. of Recommendations: 46
I remember the Solazyme story well. It was personal to me. A neighbor happened to be one of Solazyme's lead genetic scientists. He explained to me the ideas behind using algae to create custom oils and it just seemed like a logical approach. There wasn't much in the way of financials but I was completely taken with the intuition behind it. Frankly, it still seems compelling. Anyway, I invested.

The ups and downs and incessant delays of the Moema plant are well described in your post. But there was one moment that made me sell my exposure (at a heavy loss). I remember towards the end of one of the later quarterly conference calls, an analyst asked about the capitalization. Would they need to raise more money in the near term? The CFO took the question and replied that there was absolutely no need to do so, and they had no plans to that effect. A few days later, both the CFO and the CEO sold large blocks of shares. And within 30 days of the call a very dilutive financing was done. I don't remember the timing, or the specifics of the recap, but the stock dropped very hard. That's when I took my losses.

So the first learning I would add to your list: If executives show themselves to be dishonest towards shareholders, nothing else matters. Just stay away.

The second rule that Solazyme violated, was related to me by my uncle who, in the 1980s, as a young electrical engineer, was part of a startup venture in Germany: His company had developed a novel, fast, automated precision instrument to measure cylinder and piston dimensions for internal combustion engine parts. Because there's always a tiny amount of variation in the way these parts are machined, engine manufacturers look to optimally "mate" the right cylinder to the right piston, to reduce wear and maximize engine output.

Their machine worked well enough, just like SZYM's algae design and fermentation process. And there was interest from automotive companies in Germany, just like Bunge and other large food and agriculture conglomerates were interested in working with SZYM. But the problem was that these large partners recognize fully the leverage they have over their would-be suppliers. My uncle's company was finally bought at the brink of bankruptcy by one of their potential customers. The early employees lost years of sweat equity. I believe that is more or less what Bunge did to SZYM. They were interested in acquiring the company, but they were in no rush. SZYM needed Bunge as JV partner in Moema far more than Bunge needed SZYM. A litany of operational problems was blamed on Bunge's half-hearted support in Moema. I think much of this was factual.

Looking back on his experience, my uncle told me: "It's beyond the financial means of a startup to fundamentally change the way large corporations operate. Especially in a concentrated industry"

So, that is the second learning I would offer: Don't buy stocks of companies that try to sell into a small set of large potential customers. Especially not, if the product is disruptive and requires the customer to partner deeply with the small supplier. That supplier will get strung along until it runs out of money and options.

Anyway, thanks for the trip down memory lane.
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