Tag Archives: Qteros

What Are the Major Alternative Fuels Interests of Oil Majors?

As the alternative fuels industry diversifies and scales up, financing is always the key to technology commercialization. While several sources of financing drive the whole industry forward, we investigate the trends of corporate financing from oil majors, based on a non-exhaustive database of over 1,000 deals and partnership engagements from 2000 through September 2014. With the focus on financial engagement, we only look into the private placement, equity stake, joint venture (JV), mergers and acquisitions (M&A), other than general partnerships. For example, we counted BP’s bioethanol JV plant with British Sugar, but we didn’t include BP’s research work with the Energy Biosciences Institute. We then drew a graph based on the investment counts (rather than invested companies) of the seven most activate oil majors in our database, namely, Shell, BP, Total, Valero, Chevron, Petrobras and Reliance. Particularly, repeated investment activities on the same company would be counted as multiple. We further sorted the investment by six core technology families – algae, biomass to sugar, catalysis, crop development, fermentation (and enzyme development), and pyrolysis/gasification.


From our analysis of their activities in the alternative fuels industry, we find that:

  • BP leads the investment frequency in a variety of technology families. Particularly, it has a strong focus on the crop development by transgenics and breeding, with repeated investments made to Chromatin (client registration required) and Mendel Biotechnology (client registration required). It also continues investing on biomass to sugar technology including to handle cellulosic biomass, such as REAC Fuel (client registration required).
  • Shell is not a fan of crop development, but has a wide coverage on other technologies. For example, it invested on multiple rounds and formed a JV with Iogen (client registration required), but terminated the JV in 2012. Then the oil giant formed partnerships and JVs with Codexis (client registration required), Cosan, and Novozymes to continue its interests in cellulosic ethanol. Shell shifted its shares in Codexis to Raizen, its ethanol JV with Cosan and “formed the largest sugar and ethanol company in the world”. It also partnered with Virent (client registration required) on the biomass catalytic conversion to produce renewable gasoline, and Cellana (HR BioPetroleum) on algae biofuel. Moreover, Shell Foundation also funded Husk Power System (client registration required) on gasification development.
  • Total and Chevron are the most active corporate investors in the fermentation domain. Total did the private placement on the IPO of Gevo (client registration required) and formed a JV with Amyris (client registration required) with both focusing on corn and sugar cane feedstocks. Gevo is focusing on isobutanol fermentation and Amyris is doing the bioconversion to produce isoprenoids. On the other hand, Chevron invested in Codexis (client registration required) and LS9 (client registration required) with its concentration on the genetic engineering, while LS9 was acquired by Renewable Energy Group in early 2014 (client registration required). All invested companies by these two giants are diversifying their revenue streams with drop-in fuels, specialty chemicals, and/or drugs in downstream markets.
  • Velero has a strong focus on the drop-in fuel production either by bioconversion or catalysis. Valero owns 10 facilities in the U.S. with over 1,000 MGY corn ethanol capacity. However, it is also interested in cellulosic ethanol with its funding of Qteros, Mascoma Corporation (client registration required), and Enerkem (client registration required). Additionally, the focus on waste feedstock can be reflected by its investments in the ill-fated Terrabon (client registration required), which was focused on wet waste-to-gasoline.
  • Investments of oil majors in developing countries are more constrained by local resources and policy drivers. For example, Reliance is investing the algae technology developers such as Algae.Tec (client registration required), Aurora Algae (client registration required), and Algenol Biofuels. Petrobras is concerned with fuel production from sugar cane or bagasse, such as BTG-BTL (client registration required) and BIOecon, which combine the feedstock advantage and local policy driver. Other oil majors not listed in the graph, such as Chinese oil majors, Sinopec and PetroChina (CNPC), are shifting their focuses from food ethanol to cellulosic ethanol and coal-to-ethanol, which is responding to the call of the Chinese government to discourage the food ethanol industry (see the report “Fueling China’s Vehicle Market with Advanced and Coal-based Ethanol” — client registration required.)
  • Less active oil majors in this space include ExxonMobil and ConocoPhillips. They only made sporadic investments – such as Synthetic Genomics (client registration required) by ExxonMobil and ADM by ConocoPhilips. Additionally, ExxonMobil mobile recently teamed up with Iowa State University to research pyrolysis.

Terrabon files for bankruptcy, as strategic investors re-evaluate portfolios

Waste-to-fuels company Terrabon filed for Chapter 7 bankruptcy protection in September. Terrabon CEO Gary Luce said that the firm was “unable to obtain additional funding,” and approximately 60 employees were laid off. The company had a history of missing key milestones, and we flagged this nearly one year ago in our last profile of the company (client registration required.) Two years ago, the company was expecting a $25 million funding (client registration required) round in the first half of 2011.

Terrabon was developing a multi-step process to convert wet waste into drop-in gasoline and jet fuel. The process features bacteria fermentation, pyrolysis, then a catalytic conversion into gasoline. In this multi-step process, yield loss was a significant factor, and Terrabon expected a yield of 70 gallons per ton of dry feedstock, much lower than fellow waste convertors like Enerkem (90 gallon/ton) and Fulcrum (120 gallon/ton). Terrabon, however, was targeting different feedstocks than most other waste convertors, focusing on wet waste. Terrabon focused on a mix of municipal solid waste (MSW), sludge, and biomass, and its feedstock was 30% solids, much lower than that of its competitors.

Among its investors, Waste Management and Valero decided not to give out the big dollars necessary to keep the company afloat and build its first commercial facility. Looking first at Valero’s portfolio, it becomes clear the rocky track record Valero has in this space. First and foremost, Valero is the third largest ethanol producer in the U.S. (client registration required) behind POET and ADM, though recently it idled a 110 MGY facility in Nebraska (client registration required.) Valero also invested in biofuel failure Qteros (client registration required), behind-schedule producers Enerkem and Mascoma, and cellulosic ethanol company ZeaChem. Beyond cellulosic ethanol, Valero is scaling up a renewable diesel facility in a joint venture called Diamond Green Diesel.

Terrabon’s other strategic investor, Waste Management, similarly has several waste-to-fuel companies in its portfolio (client registration required), including Enerkem, Fulcrum, and Agilyx. Most recently, WM invested in pretreatment company Renmatix, capping off its $75 million Series C. While the recent Renmatix investment (and investment in Genomatica before that) shows that WM isn’t pulling out of the fuels space altogether, we do expect to see strategic investors like WM continue to pare down portfolios. This doesn’t mean that strategic investment will go away, or even decrease, just that new companies and technologies may take the place of current investments. Oil giant Shell, for example, significantly downsized its relationships with Iogen and Codexis (client registration required) this year.

Corporate investment in this space boomed in 2007 and 2008, see the report “Hedging Bets with Flexibility in Alternative Fuels” (client registration required), and the partnering web expanded most rapidly in 2008 and 2009, see the report “Mapping Empires, Goldmines, and Landmines in the Alternative Fuels Network” (client registration required.) Over the past four to five years, strategics funded innovation at these start-ups, and now these producers need to perform commercially. Missing technical and project scale milestones won’t cut it anymore, and the corporate parents are kicking their kids out of the house, to sink or swim on their own. Expect to see more relationships falter in this space, but even more form as innovative companies continue to emerge, promising new sources of fuels and novel conversions, and new types of organizations partner their way into the alternative fuels arena.

Alternative Fuels: Rating Bioprocessing Companies on the Lux Innovative Grid

As the alternative fuels industry rapidly approaches maturity, reports of IPOs and commercialization have blended with headlines about spectacular failures and cheap acquisitions. The remaining players navigate a landscape of prospective partners, funding, and scale as well as serious uncertainty (read: opportunity).

A thorough examination of the field reveals contenders, dark horses, and long-shots within several technology classes, including pretreatment, bioprocessing, and gasification. While many of these companies appear similar on paper, we applied the Lux Innovation Grid in a recent report to rate them in three dimensions – business execution, technical value, and maturity. Drawn from that report, this week’s graphic reveals likely winners and losers among Alternative Fuel bioprocessing companies which, as a group, offer strategic flexibility in feedstock and end-products.

The crowded Dominant Quadrant is due in part to the successful IPOs of Amyris, Gevo, and Solazyme, as well as the impending commercial scale of companies like LS9, Cobalt, and LanzaTech. Aemetis edges into the Dominant Quadrant thanks on the technological potential of its Z microbe, which simultaneously breaks down cellulosic biomass and converts the sugars into isoprene. ZeaChem also lands in the Dominant Quadrant due to high partnership and momentum scores, fueled by a recent funding round and joint development agreement with P&G.

Cellulosic ethanol producers Qteros and Mascoma both claim low cost production and robust organisms, but both fall into the High Potential Quadrant due to sagging business execution scores. Qteros’ Q microbe could lead to more efficient processing of biomass; but it recently laid off most of its staff, including its CEO. Touting similar technology, Mascoma filed for an IPO* in September, but could see its public launch hindered by capital intensity and slowing momentum.

Lastly, OPXBiotechnologies shows some interesting potential for developing microbes for acrylic acid (with partner Dow) and diesel as part of the ARPA-E funded Electrofuels project: https://portal.luxresearchinc.com/research/tidbit/8436*. But, on the fuels side, it falls into the Long-Shot Quadrant due to a competitive landscape score of 2, and a partnership score of 2, with an overall Lux Take of “wait and see.” Joule, on the other hand, we rate as a “caution” thanks to a barrier to growth score of 1, no commercial partners, and wholly unproven claims.

Source: Lux Research report “Refining Alternative Fuels Innovators into Winners and Losers.”

* Client registration required.

Value of VC investments by Process Technology, 2004 to 2009

Graphic of the WeekIn 2004 and 2005, VCs were largely planting small seed investments in synthetic biology and genetic modification companies. All of these deals were less than $10 million in size. But VCs quickly realized that successful exits depended on scaling production of bio-based fuels. Combined with mandates for increased ethanol production set in the Energy Policy act of 2005, this motivated VCs to change course and begin making gargantuan investments in large-scale plants for corn or cane fermentation. Over the course of 2006 and 2007, VCs put $859.2 million in first-generation ethanol alone.

Even before the financial crisis of 2008, however, investing in large-scale plants was yielding VCs poor returns. By the end of that year, VCs had changed tack again, shifting focus from end product to other start-up features, such as flexible process technologies, capital light business models, and new geographies. They also made smaller investments in a range of other technologies, including cellulosic fermentation (Qteros’s $3.5 million Series A round in 2007), algae photobioreactors (Sapphire Energy’s $50 million Series A in 2008), and other chemical processes (Segetis’s $17.2 million Series B in late 2009).

Overall, in 2009, VCs invested $877 million across 51 deals for bio-based fuel and materials production, signifying a 26% drop from 2008.

Source: Lux Research report Navigating Through Scale to Successful Exits: A Compass for Biofuel and Biomaterial Investors.

Ranking cellulosic fermentation biofuel companies on the Lux Innovation Grid

Graphic of the WeekAlthough biofuels production increased 82% from 2000 to 2008, they still control a narrow niche of the overall market for transportation fuels, frustrating start-ups’ dreams of easy riches. Even so, biofuels created through new technologies like cellulosic fermentation are beginning to leave the realm of science and turn up the competitive heat.

Today’s cellulosic fermentation players, in general, aim to optimize the conversion of sugars into biofuel – either by improving traditional fermentation technologies that employ natural yeast or by applying advanced fermentation techniques using genetically-enhanced yeast, other microbes, or some combination of the two.

While technology is a differentiator, scale matters more right now. As with most emerging biofuel technology spaces, novel fermentation technologies haven’t been around long enough to prove or disprove viability. The industry knows what needs to happen: the production cost of cellulosic ethanol (propanol, butanol, or methanol) need to become cost-competitive with their petroleum counterparts. Right now, all of these companies are in a heated race to achieve that low cost, which can only happen at commercial scale.

Companies that achieve scale first, however, have the best chance at success. The two biggest contenders are Iogen – the most mature company of the lot – and Mascoma, which scores well on business execution and technical value thanks to its potentially cost-cutting “consolidated bioprocess” in which a single microbe breaks down cellulose and ferments the sugar to produce ethanol.

Qteros and Genomatica also show promise. Like Mascoma, Qteros is developing a consolidated bioprocess backed by high-profile partners. But its progress has been slow, and the lack of production beyond lab scale accounts for its low technical score. Similar issues face Genomatica, whose genetically modified microbes produce BDO, a chemical intermediate valued much more highly than ethanol. But it too scores low on technical value as it has yet to move production beyond lab scale. Despite Genomatica’s strong leadership, it lags in business execution due to a lack of commercial partnerships and low momentum, as its slow path to scale-up means it will likely require additional investment.