LS9, a company which is using a genetically modified version of e.coli bacteria to make diesel from biomass, on Thursday announced it has raised $25 million in its third round of funding. Chevron Technology Ventures’ venture capital arm, CTTV Investments, participated in the round, making this the latest biofuel project from the big oil company. In 2008, Chevron announced a development deal with algae-based fuel company Solazyme, and has been working on a cellulosic ethanol joint venture, called Catchlight Energy, with forest-product company Weyerhaeuser.
While having a big oil backer is a good sign for a young startup, LS9′s round was markedly smaller than the $65 million the company was seeking back in February and well below the $75-$100 million it had hoped to raise last October.
The smaller round could indicate sluggish investor interest in biofuels other than algae-based fuels. After more than a year of slim venture capital funding for biofuels — as feedstock costs rose, biofuel prices fell and critics raised questions about biofuels’ green cred — we saw a bump in deals this summer, although mostly for algae-based startups, such as Synthetic Genomics, Solix Biofuels and Solazyme. At least one exception has been LS9 competitor Amyris Biotechnologies, which in August raised $24.7 million of what it hopes will be a $62 million round.
The smaller round also could suggest a strategy change that might require less cash. Aside from fuel, LS9 in May announced it is developing technology to make sustainable chemicals in a partnership with Proctor & Gamble.
LS9 started up a 1,000-liter pilot plant in South San Francisco last year and is building a 2.5-million-gallon demonstration plant expected to be completed next year. Aside from CTTV, LS9 also got renewed backing from its existing investors, Flagship Ventures, Khosla Ventures and Lightspeed Venture Partners.