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Investors favour flexible feedstock renewable fuel start-ups

Investment in renewable fuel start-ups with flexible feedstock or diverse end products reached an all-time high of US$698 million in 2010, according to Lux Research.

By Kari Williamson

At the same time, however, investment in alternative and renewable fuel start-ups in general reached a four-year low of US$930m.

This could signal a trend where less flexible technology start-ups could be forced out of the alternative and renewable fuel industry, the analyst says, as investors become more selective.

“The recent successful IPOs of Amyris, Solazyme, and Gevo all reflect the larger industry trend of investing in more flexible end-product technologies,” says Andrew Soare, a Lux Analyst and lead author of the report Hedging Bets with Flexibility in Alternative Fuels.

“A handful of fuels-focused start-ups continue to draw investors, including waste-to-fuels companies Enerkem and LanzaTech, and cellulosic ethanol companies Qteros and Mascoma. But flexibility is part of their DNA as well, in that they derive fuels from multiple feedstocks.”

Lux Research’s key conclusions include:

Synthetic biology’s inherent flexibility is a wise investment, but not the only one.

Synthetic biology has attracted the most funding since 2004: US$1.84 billion or 28.4% of the total. But investors shouldn’t ignore other flexible technologies. The catalytic approaches from Virent and Elevance, for example, can produce a range of fuels, rubbers, oils, and plastics. Technologies capable of using agricultural, solid, or gaseous waste, such as LanzaTech, GlycosBio, and Ignite Energy, present further opportunities;

Investments will favour fewer companies in later stage funding.

Most alternative and renewable fuel technologies today are past the point of initial seed funding, and are seeking capital to scale up manufacturing. Those closest to scale will continue to raise large Series C and Series D rounds, while less advanced companies will struggle to land moderate earlier rounds, resulting in more failed start-ups over the next few years; and

Expect new corporate investors to enter the space.

While energy and agricultural companies have been the main corporate investors, waste management companies have recently joined them with investments in a half dozen waste-to-fuel technologies. Expect forward-looking corporations to bring additional industries into the fray, such as pulp and paper, food and beverage, and non-obvious downstream brand owners such as UPS.

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