Alternative fuel startup companies with technologies that can use a variety of feedstocks or generate diverse end products will continue attracting investments, while those with less flexible technologies will not survive, suggests a report by Lux Research.
According to the report «Hedging Bets with Flexibility in Alternative Fuels,» investors poured out $930 million to alternative fuels start-ups in 2010, representing a four-year low. Meanwhile, investment reached an all-time high of $698 million for companies with flexible technologies that use various feedstocks or produce diverse end products.
The trend observed by the report implies that start-ups stuck with less flexible technologies will be forced out of the industry.
Although high oil prices and trillion dollar markets since 2004 have caused the diversion of $6.46 billion in investment to the alternative fuels industry, investors have grown more selective as the years progressed. As a result, investors have been selective in dishing out larger amounts to fewer companies, with flexible companies continuing to secure the confidence of these investors.
Flexibility in feedstock or end product has been the measure of these investors since these factors increase addressable market, provide secondary revenue streams, and keeps technologies secure from price volatility.
«The recent successful initial public offerings of Amyris, Solazyme, and Gevo all reflect the larger industry trend of investing in more flexible end-product technologies,» said Andrew Soare, a Lux analyst and lead author of the report.
Amyris of California, through its subsidiaries Amyris Brasil and Amyris Fuels L.L.C., produce renewable fuels, chemicals, and products using industrial synthetic biology-based technologies and sugarcane feedstock.
Solazyme employs an industrial biotechnology system that harnesses microalgae’s capability of producing oil. The California-based company’s technology can use a wide variety of plant-based sugars, such as sugarcane-based sucrose, corn-based dextrose, and sugar from other biomass sources including cellulosics.
Colorado-based Gevo develops biobased alternatives to petroleum-based products using synthetic biology and chemistry. The company’s goal is to produce isobutanol, which has applications as a solvent and a gasoline blend stock that can help refiners meet renewable fuel and clean air standards. Isobutanol is also expected to be able to undergo further processing as jet fuel and as feedstocks for synthetic rubber, plastics, and polyesters.
Waste to energy
The report cited other fuels-focused start-ups that continue to draw investor confidence, including waste-to-fuels companies Enerkem and LanzaTech, and cellulosic ethanol companies Qteros and Mascoma. These companies were also noted for their flexibility, as they derive fuels from multiple feedstocks.
The report cited synthetic biology companies as viable. Synthetic biology has attracted the most funding since 2004, at $1.84 billion or 28.4 percent of the total. Catalytic technologies from companies like Virent and Elevance can produce a range of fuels, rubbers, oils, and plastics. Technologies capable of using agricultural, solid, or gaseous waste also have potential, as in the case of LanzaTech, GlycosBio, and Ignite Energy.
The study said investments will favor fewer companies in later stage funding, since most alternative fuel technologies are already past initial seed funding phases, and are seeking capital to scale up manufacturing. Those closest to scale will continue to raise large Series C and Series D rounds, while less advanced companies will struggle to find moderate earlier round-funding, resulting in more failed start-ups over the next few years.
Meanwhile, waste management companies will be the new set of corporate investors in the industry, the study predicts. These companies have recently invested in a half dozen waste-to-fuel technologies. Forward-looking corporations will also likely bring additional industries into the fray, such as pulp and paper, food and beverage, and non-obvious downstream brand owners such as UPS.
Lux Research analyzed 333 investments in 170 unique start-ups since 2004 for the report. The research company is owned by New York-based venture capital firm Lux Capital Management, which invests in emerging technologies.
