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Summary:

Venture capitalist Vinod Khosla still remains a dominant force in shaping the next-generation of biofuel innovation and could make some of his first returns as a biofuel baron this year. Albeit, likely small returns.

Updated: While venture capitalist Vinod Khosla has been backing biofuel startups for years, 2010 could be the first year that he stands to generate returns from his biofuel bets. Two of Khosla’s biofuel portfolio companies have filed for IPOs in recent weeks and the investor’s influence is still clearly felt across the sector. But how well will the firm actually make out?

Isobutanol maker Gevo filed its S-1, last week in an effort to raise up to $150 million in an IPO. According to Gevo’s S-1 Khosla Ventures owns 40.6 percent of Gevo’s shares.

Amyris Biotechnologies, a startup that develops synthetic organisms to make chemicals and biofuels, filed to raise $100 million in an IPO in April. The company raised a total of $244 million in funding and Khosla Ventures, along with Kleiner Perkins, each own 15.4 percent of Amyris’ shares.

Khosla’s dozen other biofuel firms — which include Range Fuels, Coskata, Mascoma, LS9, and KiOR among others — don’t seem to be aiming for the public markets just yet. But if you look at who Gevo refers to as a competitor, Khosla’s influence over the industry still stands out: out of two dozen firms that Gevo lists as competitors, a quarter of them have been supported by Khosla.

But Will He Make Money?

So, some of Khosla’s biofuel investments are “coming of age,” so to speak, but will they make Khosla Ventures much money? Well, they definitely won’t be home runs and no, the firm probably won’t make a ton on these two investments. At this point it’s unclear if Gevo or Amyris will have successful IPOs (or will IPO at all), given the companies are both in pre-commercial states, don’t generate much revenues, and certainly aren’t profitable.

Gevo has accumulated a deficit of $50.3 million, and for 2009 generated $660,000 in revenues and lost $19.89 million. As of December 31, 2009, Amyris had accumulated a deficit of $120.4 million, and for 2009 generated $64.61 million in revenues and lost $64.80 million.

Khosla has mostly lost money on biofuels before. As Robert Rapier pointed out in this article in February, Khosla wrote about a company called E3 Biofuels in an article for Wired back in 2006 entitled My Big Bet on Biofuels — Rapier says that E3 Biofuels went out of business shortly after the article came out. (Update: Khosla emailed us to clarify that he hasn’t invested in E3 Biofuels.) Another Khosla-backed firm Range Fuels has been hit with delays and has scaled back its production. Khosla-backed AltraBiofuels has been forced to change courses several times, despite over $400 million in investments and six years in business.

Cello Energy is a (now infamous) company that the EPA once relied upon to generate 70 million gallons of cellulosic ethanol production for a federal mandate (that has since been cut dramatically). Cello was backed by $12.5 million from Khosla, and has since been sued in a fraud case and has been hit with production delays.

Update: A spokesperson for Khosla emailed us to say that he is not an investor in E3 and was never an equity-holder in Cello. He has a dormant minority interest in Altra Biofuels and hasn’t been involved with the company for years.

Rapier has never been shy of his assessments of Khosla and biofuels:

I felt like he [Khosla] came into the energy industry without a very good comprehension of if, but felt that he would apply his golden touch from Silicon Valley to show the dinosaurs how Silicon Valley innovates. I also felt like he was attracted to people who made grandiose claims, but didn’t have the proper historical perspective to determine when something was truly novel (and really worked).

Learning Curve

But as happened in computing, software, the Internet and telecom, investors can learn from their failures and often keep investing despite the  misses. Khosla seems to be using some of his newer biofuel investments to help with some of the problems of the first generation biofuels.

Gevo has a low capital-intensive business model that’s directly tied to the first-generation of corn ethanol, and the company sells retrofit technology for corn ethanol plants to help them produce and sell isobutanol, a renewable fuel and chemical. The retrofit process takes about 14 months and is estimated to will cost about $22 to $24 million, for a 50-million-gallon-per-year ethanol plant, and $40 and $45 million a 100-million-gallon-per-year ethanol plant, the company estimates in its S-1.

KiOR seems to be the latest biofuel startup that has Khosla Ventures excited and has gotten the latest round of funding from the firm. KiOR raised a whopping $110 million from backers namely Khosla Ventures, for its technology called a “biomass catalytic cracking process,” based on technology derived the traditional oil industry. KiOR’s President Fred Cannon described KiOR’s technology as being able to crunch into seconds the millions of years that it takes to carbonize biomass (turn it into fossil fuels) in nature. That’s the kind of breakthrough that could help bring biofuels back into vogue.

For more research on cleantech financing check out GigaOM Pro (subscription required):

Cleantech Financing Trends: 2010 & Beyond

Image courtesy of Pinar Ozger for Green:Net 2010.

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  1. what’s biofuel??

    1. Fuel made from biomass.

  2. I don’t care if he makes money. I do care that SOMETHING

  3. Even if you can make biofuel “in seconds”, you still need the massive feedstock to support it, and an infrastructure to carry it to the plant. That’s not cheap and never will be.

  4. Jim – a commerical plant capable of supporting a meaningful quantity of product is not as expensive as you think. I should know.

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