Venture funding backs `green chemistry' start-up;
Mix Russian chemists, Silicon Valley capital and Minnesota know-how and a ``cleantech'' company is born. Segetis Inc. aims to offer renewable chemical products

BYLINE: Susan E. Peterson, Staff Writer

The hot topic in venture-capital circles these days is "cleantech," and a Minnesota start-up founded by a pair of Russian chemists with big ideas and some impressive Silicon Valley backers is hoping to become a leader in the field.

Segetis Inc., the brainchild of Sergey and Olga Selifonova, is aiming to develop renewable chemical products such as bioplastics, adhesives and solvents from agricultural and forestry crops and byproducts, replacing petrochemicals. The company has secured $15 million in three installments from Khosla Ventures, a highly respected California venture capital firm. The first $5 million came in the first quarter of the year.

Segetis was one of seven Minnesota companies to receive a total of $52.9 million in venture capital in the first quarter, according to the quarterly MoneyTree survey.

"For decades, the production of many products of everyday life, from plastic table tops to shampoo bottles to car seat cushions, has been dependent on fossil materials such as petroleum, gas and coal," Sergey Selifonova said. "Green chemistry can deliver novel cost-competitive products that perform at par with or better than the existing petrochemical goods."

Using crops and trees as the chemical building blocks for products has significant transportation and raw material cost advantages over petrochemicals, he said. In addition, he said, producing value-added goods from crops could help phase out the need for farm subsidies around the world, creating a new kind of green revolution.

The Selifonovas, who met as college freshmen at Gorky University in the U.S.S.R. and are about to celebrate their 25th wedding anniversary, came to America as visiting scientists in 1990. That was during the Glasnost era before the 1991 collapse of the Soviet Union. After eclectic academic and corporate careers that included stops in Pennsylvania, Florida, Minnesota and California's Silicon Valley, they've settled in the Twin Cities to build their company.

Segetis, a Latin word that means "of the crop field," was founded in Minnesota for several reasons, the couple said. They've lived in the Twin Cities periodically since the mid-1990s; both have worked at the University of Minnesota, and Olga worked at Cargill's Biotechnology Development Center from 2000 until earlier this year.

"We like the state, we like the people, and we have to be in the Midwest," Olga said, because that's where the resources for their green chemistry technology are - not only the land, crops and forests, but the farmers and other agricultural experts.

"We would like the Twin Cities to be the prime capital of sustainable chemistry," Olga said. "All the ingredients are here - we just need to change the mentality, and show by example that it can be done."

Another big plus is the University of Minnesota's University Enterprise Labs in St. Paul, an incubator for start-ups where they have leased lab space while they look for a suitable building. Making use of that facility allowed them to get Segetis up and running quickly.

They moved in two weeks ago, and although they are waiting for lab equipment and furniture to be delivered, they have hired nine researchers and are interviewing for more jobs. They said they expect to have 20 or so employees by year's end.

Their company is being built on the principles of sustainable chemistry and responsibility for future generations, "and capitalism," Sergey added with a grin. Because of their background, he said, "we see capitalism with very different eyes. It's a chance for scientists to see what makes sense economically - how to build an enterprise out of an idea."

Their idea - and a trove of intellectual property and patents on their broad-based technology - convinced Khosla Ventures of Menlo Park, Calif., that Segetis was an attractive investment, said Doug Cameron, Khosla's chief scientific officer and interim CEO of Segetis.

Khosla Ventures was founded in 2004 by Vinod Khosla, who founded Sun Microsystems and went on to become a highly lauded venture capitalist, specializing in green technology. Fortune magazine recently dubbed him one of the nation's most influential ethanol advocates.

"Vinod is like a rock star in the venture capital world," said Dan Carr, CEO of the Collaborative, a Minneapolis-based forum for business development. "Activity breeds activity. To have [Khosla] make an early-stage investment in a nonethanol, cleantech company is a good thing."

Cameron, who worked with Olga Selifonova at Cargill when he led biotechnology research at the agribusiness giant, said the couple is "smart and hard-working, with a strong entrepreneurial spirit."

While using ag products as renewable chemical raw materials isn't new - Cargill's NatureWorks operation is a pioneer in the field - Segetis is working on next-generation products and technology, Cameron said.

"There are numerous, numerous challenges ahead," he said. "Anybody who knows about the chemical industry knows there are lots of speed bumps when you introduce new molecules into the field. But we're fully aware of that. ... We're hoping that we're a little bit leading the way, but positioning ourselves to be a leader in the field."

The Selifonovas said Khosla Ventures' mentoring and guidance has been just as valuable as its investment.

"They really do care ... it's pretty much a family relationship," Sergey said. "And [Vinod Khosla] has made every mistake he could make, so we don't have to."

Susan E. Peterson - 612-673-4506

SEGETIS INC.

Business: Biotechnology start-up company that develops renewable chemical products such as bioplastics, adhesives and solvents from agricultural and forestry materials to replace petrochemicals.

In the news: Secured $15 million in venture capital, including a first installment of $5 million.

Headquarters: University Enterprise Labs, St. Paul

Website: www.segetis.com

Executives: Sergey Selifonova, co-founder, president and chief scientific officer; Olga Selifonova, co-founder and vice president of corporate development; Doug Cameron, interim CEO of Segetis and chief scientific officer of Menlo Park, Calif.-based venture capital firm Khosla Ventures.

Employees: Nine now, with plans to hire up to 20 by year's end.

FIRST-QUARTER VENTURE CAPITAL SPENDING IN MINNESOTA $52.9 MILLION Company, location Amount Business Investors raised MEDICAL DEVICES & EQUIPMENT Investment: $26.1 million Pct. of total: 49.4% Transoma Medical Inc., St. Paul Canaan Partners, Polaris Venture Partners, $14 million Provides implantable wireless Affinity Capital Management, undisclosed diagnostic systems venture firm BridgePoint Medical, Minneapolis Polaris Venture Partners, New Enterprise $10.0 million Develops devices for Associates, Foundation Medical Partners, interventional cardiology individuals Disc Dynamics, Eden Prairie Medtronic Inc., Maverick Capital, $2.1 million Develops a continence management Pequot Capital Management, St. Paul program Venture Capital, Affinity Capital Management, Brightstone, Capital, Upper Lake Growth Capitol, Split Rock Partners, undisclosed investor Harland Medical Systems, Eden Prairie DSM Corporate Venturing Undisclosed Provides products in medical coating applications SOFTWARE Investment: $21.8 million Pct. of total: 41.2% Gearworks Inc., Eagan Split Rock Partners, Rho Ventures, $21.4 million Provides mobile workforce Carlin Ventures, Concentric Equity management software Partners, BlueStream Ventures Sinex Aviation Technologies Corp., Duluth Northeast Ventures Corp., the Whitecliff $400,200 Provides security software for Group, undisclosed venture firm, delivering information over undisclosed investor the Internet INDUSTRIAL/ENERGY Investment: $5 million Pct. of total: 9.4% Segetis Inc., Plymouth Khosla Ventures $5 million Provides renewable chemical products

Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey