August 16, 2009

Hot Algae Nights: Venture Investment In Biofuels

VC investment tends to come in stages.

In the biofuels realm, 2006/2007 was the corn and food-based ethanol stage. That has not worked out too well for VC investors or corn-farmers who dabbled in ethanol factories. It has been a boon for bankruptcy lawyers, though.

The years 2007/2008 were the cellulosic biofuels phase. That's somewhat in remission with occasional VC outbreaks.

And 2008/2009 has been the era of algae biofuels.

Venture Capital Investment in Algae Biofuels

Considering the immense technical risks and daunting capital costs of building an algae biofuels company, it doesn’t seem like a reasonable venture capital play. And most if not all of the VCs I’ve spoken with categorize these investments as the longer-term, long-shot bets in their portfolio. But given the size of the liquid fuels market, measured in trillions of dollars, not the customary billions of dollars, it makes some sense to take the low-percentage shot.

These startups run the gamut of algae technologies – open pond, closed pond, photobioreactors, aphotic, naturally occurring algae and genetically modified.

And these firms are going to continue to need capital. According to Jennifer Fonstad of VC investor, Draper Fisher Jurvetson, “The current strategy of many of these companies has been to turn to the government stimulus plan – this is the risk capital we can rely on today.” Ms. Fonstad was an investor in the now defunct GreenFuel.

Michael Kanellos covers recent algae activity with LiveFuels here. Jeff St. John gives an algae rundown here. I covered Synthetic Genomics' funding here. And GTM Research has a brief algae summary report here.

I'm not a phycologist, but after hundreds of conversations with experts and a few years of research – my take on vehicle-scale fuel from algae is that it can be done but it's going to take a lot more time, money, land, water and resources than are currently anticipated.

“VCs cannot come in here and just harvest ripened fruit – this is not shovel ready technology,” according to Dr. John Benemann on Venture Capital in algae.

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