LS9 to Start Building Demo Plant, Raising $65M

ls9diagramBiofuel company LS9 plans to start building its second plant this year, CEO Bill Haywood said during a presentation at the Cleantech Forum in San Francisco on Tuesday. The company, which is using a genetically modified version of e.coli bacteria to make diesel from biomass, didn’t say how much fuel its demonstration plant — expected to be completed in 2010 — would produce, but previously told Earth2Tech that it would have an annual capacity of 2.5 million gallons.

LS9 started up its first plant, a 1,000-liter pilot plant in its hometown of South San Francisco, Calif., back in September. The company is already producing vehicle-ready, ultra-clean diesel from the plant, although at this point, most of it is being used for testing and development, said spokesperson Jon Ballesteros.

LS9 is also planning to raise a smaller third round of funding than it previously said it was seeking. CEO Haywood said LS9 plans to raise around $65 million, which it will use to build the demonstration plant and reach commercial production, vs. the $75 million-$100 million he said the company was looking to raise back in October.

LS9 which raised $15 million in its second round of funding in 2007, plans to tap its internal investors for the money, and may also take funds from strategic partners or new follow-on partners, Haywood said. LS9’s current investors include Lightspeed Venture Partners, Flagship Ventures and Khosla Ventures.

But the round isn’t a sure thing, according to Ballesteros, who said the company might end up getting money from strategic partners and existing investors instead of completing a formal venture round. “We’re working on strategic partnerships and they are going to be imminent, and we already have commitments from internal funders and some follow-ons, so we don’t really know if we will need to go for a full-blown raise,” he said. “We’re looking for some sense of that and exactly what we will be needing in the second half of this year.”

In any case, the company isn’t planning to take on any debt financing until at least 2011, and it may be able to avoid it all together, Haywood said. “By then, we hope to have a strategic relationship with someone with deeper pockets,” he said. LS9 hopes to start commercial production by 2012 and then plans to build a dozen or more plants to reach a capacity of 1 billion barrels.

The company also is considering the possibility of buying distressed assets — such as defunct biofuel plants — to reduce its cost of adding capacity, Haywood said, although he added that most of the equipment at those plants aren’t applicable to LS9’s technology.