Synthetic Genomics

Gee whiz, algae!

September 12, 2010

Big institutions can make mistakes, as we’ve learned, painfully, lately. (See BP, Lehman Brothers, Merrill Lynch, etc.) But when big corporations like Unilever, Chevron and Bunge  invest in a algae company that is also in business with the U.S. Navy, well, that’s a good reason to take notice.

The algae company is called Solazyme and, if nothing else, it’s notable for the range of products that its algae are able to produce: They include jet fuel, diesel fuel, super-healthy vegetable oils and other algal oils that become ingredients in soap, lotions, ice cream, cookies and mayonnaise.

Jonathan Wolfson, with algaeIn March, I met Jonathan Wolfson, Solazyme’s CEO, and came away impressed with his passion and smarts. (See Solazyme’s Amazing Algae.) So I called him again last week to talk a bit about the company’s latest round of investment and its backers. Besides Unilever, Bunge and Chevron, Sir Richard Branson and a big Japanese food-ingredient company called San-Ei Gen also invested.

“What you’re seeing with these investors is a very diversified set of partners,” Jonathan told me. “You start to see blue-chip investors who are validating the breadth of our technology platform.”

Solazyme raised about $60 million in its latest round of investment, Series D. It has raised about $150 million in equity, which is substantial but not as much as some competitors. Last year, for example, ExxonMobil said it was investing about $300 million in Synthetic Genomics, a startup led by scientist Craig Venter. Bill Gates has invested in Sapphire Energy, another algae startup.

But no algae company has put together as impressive a list of backers as Solazyme.  The Wall Street Journal reported that Unilever spent months testing Solazyme’s algal oil as a possible substitute for palm oil, which is controversial, in such products as Lux soap. It concluded that Solazyme can product algal oil at sufficient scale to become a viable supplier, the Journal said:

“This isn’t just a niche application,” says Phil Giesler, director of innovation for a Unilever unit that invests in new technologies. “This is something which we believe has tremendous capability.”

Bunge, meanwhile, is a huge agricultural firm,  a major producer of sugar cane and a distributor of vegetable oils. Solazyme’s algae can turn sugar cane into vegetable oils. “We’ve already produced oils using bagasse,” Wolfson said. (Bagasse is residue that remains after sugar is extracted from sugarcane stalks.)

For its part, Chevron invested in Solazyme last year, and put it more money this summer, presumably because it likes what it sees. Chevron wants to understand if algae can be an efficient way to produce transporation fuels, such as diesel and jet fuel.

Based in South San Francisco, Solazyme was founded in 2003 by Wolfson and Hamilton Dillon, a college friend. Its technology differs from most algae startups. Instead of growing algae in ponds using sunlight as an input, the company feeds cheap sources of biomass such as sugar cane or switchgrass to its algae and grows them in big tanks, most of them in a rented facility in rural Pennsylvania.

The company is getting substantial government as well as private-sector backing. The U.S. Department of Energy has given Solazyme a $22 million grant to expand production, and the Navy awarded the company an $8.5 million contract buy marine fuel.

Solazyme may have more news this week, Jonathan told me. If so, I’ll update this post or add a new one. This company is worth watching.

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Solazyme’s amazing algae

March 18, 2010

reef3216Algae are so good at producing oil from sunlight and carbon dioxide that there are, by some accounts, as many as 200 companies trying to make biofuels from algae. Some are obscure, little more than a couple of guys playing around with pond scum. Others are attention-grabbing, like Synthetic Genomics, the company led by pioneering scientist Craig Venter that  joined forces with ExxonMobil in a $300 million research program.

Solazyme, a private company based in South San Francisco, stands out from the algae crowd, for a number of reasons.

First, there’s the sheer variety of its products. Solazyme makes fuel for  the U.S. Navy. It makes a heart-healthy, vegetarian, protein-rich microalgae power that goes into Garden of Life supplements and vitamins sold at stores like Whole Foods. And it recently announced a deal with Unilever to use algal oil in renewable,  sustainable personal care products like soap. Its algae are multi-talented.

Then, there’s the fact that Solazyme, unlike other startups, is “producing large volumes of oils and fuels, and we have been for a while,” says its CEO, Jonathan Wolfson. What’s large volumes? An annual rate of tens of thousands of gallons, including a little over 20,000 gallons of shipboard fuel during the first half of this year for the Navy,  part of an $8.5 million contract signed last year.

Finally, Solazyme raised a Series C financing round of about $57 million during the credit crunch, much of it from existing investors including Braemar Energy Ventures, Lightspeed Venture Partners, the Roda Group and Jerry Fiddler, the firm’s chairman–all of whom stuck by Solazyme through some  early stumbles. [click to continue…]

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In search of the perfect biofuel

May 21, 2009

Funny thing about the biofuels business. Roughly 200 companies are pursuing the perfect biofuel—as cheap as fossil fuels, adaptable to today’s infrastructure, low-carbon, sustainable and no threat to the food supply or to tropical forests. But even cutting-edge startups that say they have the puzzle just about solved can’t raise the money they need to get into commercial production.

“Everyone wants to be the first to finance the second plant,” says Arnold Klann, the CEO of biofuels firm Blue Fire Ethanol. “No one one wants to be first to finance the first one.”

“Banks are not willing to lend,” Klann said. “They’re risk averse.” The industry needs the support of banks or the public markets because a commercial scale will cost upwards of $100 million, more than the venture capitalists now financing the industry want to put at risk. Publicly-traded Blue Fire makes ethanol from wood wastes, urban trash, rice and wheat straws, and it was awarded a $40 million U.S. Department of Energy grant, but it has been slow to get to commercial production and investors are skeptical. The firm’s market capitalization is only about $25 million.

Biofuels are on my mind because I  spent the day at BIO International, a sprawling (14,000 attendees) biotech industry convention in Atlanta. I’ve written very little about biofuels, mostly because the science of turning plants into fuel is quite complicated, and so it’s hard to separate companies with a shot at making it big from those with no hope. That’s not just a challenge for me—the corn ethanol industry has destroyed many millions of dollars of capital from investors who rushed in too quickly.

Still, there are strong forces driving biofuels, most of them emanating from Washington where Congress has adopted biofuels mandates. The historic Waxman-Markey climate change bill just passed by the House energy committee will, if it becomes law, provide another boost to biofuels by raising the price of gasoline and diesel fuels.

At BIO, Laurence Alexander, the managing director of investment bank Jefferies & Co., moderated an excellent panel that taught me a bunch of things. Some highlights:

It takes a lot of feedstock to make biofuels. For ethanol to account for 5% of U.S. gasoline use, it would require turning 33% of the U.S. corn crop into ethanol. Globally, it would take 100% of the soy, rapeseed and palm oil production to produce 10% of the global supply of diesel. That’s at current yields, of course, which is why it’s so vital to drive up yields.

Biofuels have an image problem. “Glib critics,” Alexander said, “could shift the policy debate.” The industry needs to prepare to answer tough questions, even if they are only loosely based on reality: How many children did you starve to drive to work today? Can we run out of arable land? Will biofuels drain the acquifers?

Not all feedstocks are created equal. I knew that, of course, but the variations in productivity are dramatic. In terms of gallons of fuel that can be produced per acre, according to Aristides Patrinos, the president of a company called Synthetic Genomics, sugar cane (800) and switchgrass (500) outperform corn (375) and jatropha (202). Still, his company, which was started by Craig Venter, is excited about jatropha because it yields a high quality oil, grows in poor soils and can live in semi-arid regions. “That’s in our view an ideal fuel because it doesn’t really compete for the same land where you can grow food,” Patrinos said. It’s ripe for significant genetic modification to improve yields. “We’ve just recently announced the sequencing of the jatropha genome,” he said. Who knew?

Two well-funded startups delivered impressive presentations. One was Amyris Biotechnologies, which I knew about. A fascinating company, backed by Kleiner Perkins, that first produced a low-cost anti-malaria drug for the Gates Foundation and is now making diesel fuel at a pilot plant in northern California. (Jack Newman, a co-founder, has twice been a popular speaker at FORTUNE’s Brainstorm Green.) The other was Solazyme, another Bay Area firm that uses algae to convert cellulosic feedstocks into fuel. Harrison Dillon, the president and chief technology officer, who also happens to be a patent lawyer, said the firm is able to make oil-based fuels at a commercial scale but that its cost are still higher than fossil fuels.

Because of capital constraints, it may be that well-established players will have to enter the market to take biofuels to scaleor . DuPont and Genencor, a division of a Danish firm called Danisco, formed a joint venture last year to develop a cellulosic ethanol business using corn stover or switchgrass in Tennessee, which has provided grants to the plant and pays farmers to plant switchgrass. (It takes three years to develop the first group)  DuPont–whose Pioneer division hired me to moderate a panel at BIO–and Genencor have committed to a three-year investment of $140 million. They obviously have the capacity to invest more if needed.

They’ve also got a track record.  DuPont and Genencor got together nearly 15 years ago to research the process that now produces a renewable material known as bio-PDO, which is made from corn starch, that goes into carpets, textiles and shampoos. It’s one of the big successes of the bio-materials biz.

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