Trouble at Kleiner Perkins-Backed Terralliance

Terralliance is an oil exploration startup that Kleiner backed big time. They originally started with the idea to sell their underground oil mapping technology but decided to keep it in house and do their own exploration (a classic value capture move).

I love talking about this startup because it’s very stealth– they are based down in Newport Beach and are valued at a billion dollars. With all the talk about Kleiner investing in clean tech, they never talking about Terralliance because it isn’t a clean tech company.

So it was fascinating to hear that the company spent like crazy and is about the implode because of it’s massive debt-load.

Since then, however, something went horribly awry. Sources say that founding CEO Erlend Olson spent “like a drunken sailor,” made exploration and extraction promises he couldn’t keep and that the investors — namely Kleiner Perkins – were ”shocked” by the initial results of a recent audit.

And what of the venture capitalists on this deal?

All of this, of course, makes it look like the VC investors were either asleep at the wheel, or perhaps duped (shades of Entellium?). KP’s reps were John Doerr and Joe Lacob, while Goldman’s were Joe DiSabato and Ken Pontarelli. Also on the board was private investor Ken Foster (former CEO of Newfield), while Colin Powell is listed among its advisors.

All in all, another venture capital story that proved too good to be true.

Here’s a Fortune article that mentions Terralliance from a while back.

There is one company that could be Kleiner’s first energy-sector grand slam- and there’s nothing green about it. The secretive, seven-year-old company, called Terralliance Technologies, has developed software that purports to make it easier and cheaper to find and extract oil and natural gas. Rather than license its software to petroleum giants, Terralliance decided to become a wildcatter itself. According to Kleiner partner Joe Lacob, Terralliance has already dug 100 wells around the world and is in the process of raising additional capital. Sources peg the new financing at more than $1 billion and a valuation of around $4 billion. In addition to Kleiner, Terralliance investors include Goldman Sachs and San Francisco hedge fund Passport Capital.

Terralliance, founded by software entrepreneur Erlend Olson, is so stealthy that it has no phone listing in Newport Beach, Calif., where it’s based. Its corporate Web site consists of one page that shows a map with three locations in North America, one in Europe, and one in Southeast Asia. A three-sentence description of the company says, “Terralliance has already achieved exploration success rates dramatically above the industry norm.” The company may be quiet, but it is well connected. Several years ago it retained Richard Richards, a former Reagan aide and chairman of the Republican National Committee, to make introductions to foreign governments in order to obtain commercial visas. “They’re very secretive because they’ve got some technology they don’t want the big guys to steal,” says Richards. He says Terralliance hasn’t called in a couple of years because it now has a far better-connected advisor helping it with foreign governments: former Secretary of State Colin Powell.

If Terralliance’s technology works nearly as well as its Web site says it does, the company could be ready to make a big splash. It recently hired a chief financial officer, Stephen Buscher, a former investment banker with Lazard Frères and Merrill Lynch who previously was CFO of Russian oil company Urals Energy, which is listed on the AIM stock exchange in London. Reached at his office in Newport Beach, Buscher said, “We’re not prepared to make any comments.”

It would be ironic, to say the least, if Kleiner’s first “green” jackpot turns out to be a company that actually drills for oil. Doerr, who has made the reduction of fossil-fuel use a personal crusade, refused to comment on Terralliance.


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