Case Study: Natural Gas Turbine Technologies

This article explains how Natural Gas Turbine Technologies was launched without any initial capital. It outlines how the company secured a grant, attracted investors, and used creative financing strategies to grow and scale the business.

Natural Gas Turbine successfully developed and commercialized a turbine generator that generates electricity solely from the flow of natural gas. The company sold these generators, which were installed on unmanned offshore platforms (well jackets) worldwide.

At the outset, I lacked the funds to develop the technology. I approached the local gas company and described what I was trying to accomplish. They offered me an $85,000 grant to begin the development.

Eighty-five thousand dollars was not enough to fully develop the product, but it was a good start. With the grant in hand, I began approaching investors and offering equity in the company. The first investor contributed enough money to develop the initial model. It was a 150-watt generator called the GT-150. Over time, I took on several more investors.

The GT-150 had a limited market, but there were sufficient onshore applications to justify my continued efforts.

It was clear that offshore applications would prove to be a better market due to higher margins, and there was a big problem of solar panels being stolen, particularly in remote locations in developing countries. Leveraging my success with the GT-150, we took a booth at the Annual Offshore Technology Conference in Houston, Texas. Our booth was in a tent far from the leading exhibitors, where startups with new technologies purchased affordable space, hoping to be discovered. What I did not know at the time was that the conference attendees would spend a good deal of time in this tent looking for new technology.

At the end of the conference, Chevron invited me to a meeting before I left Houston to discuss a pilot project in Cabinda, Angola. During the meeting, Chevron agreed to install a GT-150 on one of their well jackets in Cabinda to see how it would work for remote power to support instruments and lights.

The test went well. As a result, Chevron asked me to develop a 400-watt unit suitable for offshore applications. This included a requirement that the 400-watt unit receive third-party safety certification, which turned out to be a big hurdle.

At the time, Natural Gas Turbine did not have enough cash to develop the 400-watt unit. I explained this to my contacts at Chevron, and they introduced me to Weatherford International, one of the top five oil and gas service companies.

Upon researching, I discovered the SBA Export Line of Credit Guarantee. The way it worked was if I had a purchase order from a company for the export of products manufactured in the United States, the SBA would rely upon the creditworthiness of the company issuing the purchase order and consider the purchase order collateral for their guarantee. The real beauty of this program was that it would guarantee up to 90% of the purchase order, and the money could be used for almost any purpose, including overhead and development costs.

Weatherford was great to work with and very accommodating. In my first meeting with them, I explained that if they issued a purchase order and agreed that all of the generators they purchased would be exported, I could secure the SBA guarantee.

I sold Weatherford exclusive distribution rights for five years with performance minimums for $390,000 in cash and a 1.8 million dollar purchase order. Side note: because the distribution agreement was classified as an intangible asset, Weatherford did not have to expense the total cost in the year of the agreement. Instead, they could carry the distribution agreement on their balance sheet as an asset and amortize its cost over five years.

This deal afforded the company access to just over two million dollars in cash. The $390,000 Weatherford paid us upfront was enough to successfully complete the development of the GT-400. The line of credit carried the company for the next two years.

See the article below in April 2007 in World Oil magazine. (As the result of a Press Release)

Key Takeaways:

• Ask, ask, and ask again. Everything that happened leading to the success of the company described above was the result of asking for what we needed to achieve success. Usually, nothing happened on the first ask or even the second or third. It involved asking, adjusting according to the response, and asking again and again until the door opened.

• Leverage your success. Sometimes, the best time to approach investors is when you have something tangible that demonstrates future success.

• Structure the deal to benefit both parties. If you can structure a deal that allows another company, particularly a publicly traded company, to capitalize the cost, it becomes much easier for them to agree to your deal.

• Explore flexible financing options. If you can find a buyer in another country, even Canada, you can secure very flexible financing using the SBA Export Line of Credit program. You may have to educate your bank on the program because it is not well known.

• Set performance requirements for distributors. When selling distribution rights, ensure the distributor agrees to minimum performance requirements.