Biofuels: Green chems funding still a challenge for 2011

24 January 2011 00:00  [Source: ICB]

Investors may take a more critical look in 2011 as US renewable chemical firms step-up commercialization

While 2010 finished as a very good year for US start-up renewable chemical firms in terms of funding, companies will need to attract more investment this year to continue their development and commercialization strategies.

In December alone, companies such as Illinois-based Elevance Renewable Sciences, California-based LS9 and Colorado-based Zeachem secured funding and grants ranging between $25m (€18.7m) and $100m. The funding will enable them to finance new facilities, support research and development (R&D) and advance product commercialization.

"The funding landscape was much improved over 2009, with some companies securing significant new equity from both private and public sources," said Elevance CEO K'Lynne Johnson. "Companies that demonstrate progress and meet milestones will continue to find money available for growth as investors recognize the potential that renewable chemicals have in the marketplace."

"Several companies managed to get funded in a tight capital ­environment last year, which was positive for the industry in general," said Alif Saleh, senior ­director, specialty chemicals at Massachusetts-based Myriant Technologies. "2010 was better compared to 2009 and we believe the climate in 2011 will improve further. Generally, we have a good reception from both strategic and financial investors."

Massachusetts-based bioplastics developer Metabolix noted that 2010 began with investors having a conservative mindset following the recession and world economic concerns in 2009.

"The trepidation from 2009 spilled into early 2010, but things seem to have loosened up in the second half of the year. We expect the funding landscape to continue to improve as we move into 2011," said CEO Rick Eno.

Chemicals held the key to many financings in 2010, said Christophe Schilling, CEO of California-based Genomatica.

"A higher percentage of bioproducts companies that raised money said that chemicals were part of their strategy. We believe that investors were attracted to the higher margin potential," Schilling noted. "In 2011, however, investors will apply greater scrutiny to go-to-market strategies, especially as larger sums are needed to get commercial plants running and investors become more savvy about the space."

Strategic partnerships will also drive quality financing, he added. Renewable chemical firms noted increasing interests coming from traditional chemical companies.

"We've been seeing an increasing interest from the chemical industry for renewable-based products and expect that trend to continue as chemical firms note that more packaged goods manufacturers recognize the environmental, marketing and economical benefits of biobased products," said Zeachem CEO Jim Imbler.

US consumer goods firms such as Procter & Gamble (P&G), Con-Agra Foods, Clorox and even big-box retailer Walmart all plan to use renewable-based materials for packaging. P&G formed a ­development partnership with LS9 in 2009 and California-based Amyris in 2010, while Anglo-Dutch consumer goods firm Unilever formed an R&D deal with California-based Solazyme.

"In 2010, the emergence and success of renewable chemical start-ups [or new components of renewable fuel companies] such as Gevo, OPX Biotechnologies, Rivertop Renewables, Genomatica, Segetis, Elevance, LS9 and Amyris has caught the eye of the broader chemical industry," said Jim Stoppert, CEO of Montana-based Rivertop Renewables.

"Traditional chemical and petrochemical companies may begin to partner with these types of start-ups in coming years to enter into this growing field and market opportunities," Stoppert added.

Increased consumer awareness of renewable-based products, fast development of cheaper biobased chemicals and increasing petroleum prices are just some of the major drivers that helped the ­industry gain traction last year.

Financing successes last year were positive developments for the industry, said Andrew Soare, research associate at US market research provider Lux Research.

"The success of the Amyris IPO [initial public offering] is one of the most noteworthy stories in the renewable chemical space in 2010," he said. "While Amyris raised $84.4m, which was below its targeted $100m IPO, the stock currently trades in the low- to mid-$30/share range - well above the $16/share initial price."

He also pointed to Solazyme's $52m venture capital funding in August and Elevance's $100m ­series C round of funding in ­December. Interest from large corporations, however, was the big driver in terms of growth. "Downstream players, such as Unilever, Coca-Cola, and Tate & Lyle continue to engage with the leading renewable chemical firms, while chemical leaders such as DuPont, Braskem, and DSM furthered their biobased efforts through ­investments, as well as internal capacity expansions," said Soare.

DuPont and DSM made headlines in the past month, with ­DuPont announcing the $6.3bn acquisition of Denmark's Danisco and DSM acquiring US-based Martek Biosciences for $1.09bn. Both noted the expansion of their biobased chemicals and industrial biotechnology portfolios with the acquisitions.

Lux Research estimated the global biobased chemicals market to be worth $11.7bn in 2010, which represented 7% growth over 2009. "In 2011, we expect the market to grow by 7.3% and reach $12.6bn," said Soare.

Lux Research expects industry milestones in 2011 will be around IPOs, although he cautioned that not all investors would be able to make money.

"The industry is still nascent in terms of scale and will require many more years to grow. I think that 2011 will be on par with 2010 or even less in terms of venture capital dollars, as investors continue to realize how far away even the best companies are from commercialization," he said.

Several companies agreed that ­financing this year could be challenging. "Financing for first-of-a-kind technology will continue to be a challenge but our lower-risk process and higher efficiency put us in a strong position," said Imbler.

"Funding R&D, which is critical to renewable chemicals continuing their path towards mainstream adoption, will continue to be an ongoing industry challenge," said Stoppert. "To receive funding, more companies must demonstrate a quick path to market for their technology and be focused on where the direct market potential is."

Because of recent challenges in biofuels investment, Stoppert added that investors in the related space of renewable chemicals are now demanding high capital efficiency and relatively quick ­realization of market potential.

Read Doris De Guzman's Green Chemicals blog
By: Doris de Guzman
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