Martin Tobias: The Fate of Next-Gen Biofuel Startups

The 10 next-generation biofuel startups that got funded last quarter were 10 of the reasons that cleantech venture investments hit a recent record. But how well are all these biofuel startups going to do in the market? We’re not sure, but Martin Tobias, angel investor and former CEO of Imperium Renewables, decided to give his take on how the younger crop will fare on his blog. While he agrees that some have promising technologies in the labs, he says getting the economics to work on the necessary large scale is an entirely different story.

Tobias’ favorite company is Sapphire Energy, a one-year-old startup that is looking to squeeze high-octane gasoline from algae that has raised $50 million from ARCH Venture Partners, the Wellcome Trust and Venrock. He likes the idea of skipping the big oil-controlled channel and going directly to the independent oil refiners, but wants to see more details on how the economics will work.

He also has a few nice things to say about GreenFuel, the algae fuel company that uses recycled carbon dioxide. He says he likes the strategy of placing algae farms near heavy carbon emitters for multiple revenue streams. Tobias has already invested in algae fuel startup Inventure Chemical, so he’s been following this area closely.

And that’s about the nicest things Tobias had to say about some of these companies. On Range Fuels he thinks the technology will be a lot more expensive than first-generation biofuels, and contends:

“While Khosla likes to pay lip service to investing in technologies that are economic w/o government incentives, cellulosic ethanol generally through the 2.5x RFS credits, and Range Fuels specifically through large DOE grants have been showered with government money. If the plant eventually does get up and running”

For the rest of them, it’s equally as bad. Mostly Tobias is skeptical of getting the lab processes to scale large enough and cheap enough to produce enough return on investment. When it comes to Altrabiofuels spin off EdenIQ and Khosla and GM-backed Mascoma, he says repeatedly “show me” the money.

For algae fuel company AuroraBiofuels Tobias says that the company “lays out too much wood to chop in my opinion and not enough focus.” And for both Fulcrum Bioenergy and Amyris Biotechnologies, Tobias thinks some of their commercial milestones are so difficult to reach in time that he’ll give anyone $100 if either company hits them.

Before Tobias digs into company specifics, he highlights the biggest problems he sees for the biofuel industry as a whole: oversupply, waning political support, lagging distribution infrastructure, and cold debt markets. We’ll see if a year later, cleantech investments are still up, despite the fact that there will be some misses for next-gen biofuels.

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