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Biofuel Investing Lull in 2007, Back Up in 2008?

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While young cellulosic startups like Mascoma and Coskata are pulling in funding this year, in 2007, investments into alternative fuels were down significantly, according to a new report out this morning from PricewaterhouseCoopers. The difficult economics and increasing public backlash against corn-based ethanol, combined with the long time it takes to bring cellulosic ethanol to market, could have caused investors to shy away from the sector, which had previously been one of cleantech’s largest.

The report says that investment in alternative fuels, which includes biofuels and nuclear energy, came to $290 million in 2007. That was a significant drop in investment from 2006, when “alternative fuels” was the highest funded sub-sector and brought in $462 million. While the sector had less investment, the number of deals was actually higher, with 34 deals in 2007 vs. 22 in 2006. Perhaps investors were placing more smaller bets on early-stage companies and are waiting to invest in later-stage companies as they get closer to production.

But we’ll see if that trend continues in 2008, because already Mascoma, Range Fuels and Coskata have raised massive rounds to get their plants online. We’re thinking the biofuel funding amounts will jump back up in 2008, especially given that these cellulosic firms are maturing and have been seeking more capital. And then there’s those federal biofuel mandates, which will only spur more investment.