VENTURE GROUP PICKS ALGAE STARTUP: THE RACE GOES ON

Venture investment in New Energy is almost the only bright spot in an otherwise bleak investments picture right now, as reported in NEW ENERGY VENTURE INVESTMENT HITS NEW HIGH July 17.

An Ernst & Young report reiterated the trend identified in the earlier Cleantech Group study, showing that VC bets on U.S. New Energy companies jumped 41% (to $961.7 million by E & Y's methods of defining and calculating) in 2Q 2008 (up from $683.5 million in 1Q 2008), a record level of New Energy investing. Overall, 2Q VC investment was down ~8%.

2Q 2008 investments in New Energy were 83% higher than 2Q 2007 investments, according to the Ernst & Young report.

Although the E & Y numbers showed diminished general VC enthusiasm for biofuel startups, interest in 2nd-generation (cellulosic) biofuels and algae biofuels kept VCs interested in the sector.

The VCs at Allied Minds have decided to back a University of Washington (UW) biology professor’s work with algae.

Professor Rose Ann Cattolico has developed a fatty, fast-growing algae strain that her backers think might be able to produce a high-quality petroleum substitute faster and cheaper than other strains. She has been working with algae for 30 years.

Algal oils are emerging as the feedstock of choice for producing biofuels because they are grown on non-arable land, eliminating the “fuel versus food” debate, because they produce fuel at a much, much higher per-acre rate, because they can be refined into anything petroleum can be refined into, because fuels from them would require no special transport infrastructure and because they consume CO2 to grow.

One objection to algae is the gross amount of land theoretically necessary. But algae not only don’t require arable land, they don’t actually require land at all. They can be grown atop power plants or emissions-generating buildings where they will grow fat on the CO2 spew. And they can be grown on otherwise unsalvageable wastelands and brownfields.

Another objection is the cost. Proponents like Allied Minds are betting economies of scale will bring costs down to levels competitive with petrofuels when the latter must include the security costs of obtaining them and the costs of the greenhouse gas emissions they spew.

Cattolico is keeping secret the name of the organism from which her strains were derived. And Allied Minds is keeping secret the amount of their backing, though they admit the typical investment is in the $1 million range.

VCs often bank not only on the technology but the person in whom they invest. Cattolico seems serious: “I feel very strongly that this is a contribution to our society at large…I never do things halfway. I have committed to this company and the ideas, [and] I am going to be there for quite some time.”

Make no mistake; Cattolico is no hypester. She is a serious, committed scientist all too aware of the potential for unintended consequences in a too-hurried search for scientific innovation: “I think everybody is looking for the [organism] that will be perfect…And there is no perfect organism…We have to realize [that] we are dealing with living organisms…we don’t want an exotic introduced in an area where you’re going to have a huge problem as a result of that organism being there.”

click to enlarge

Allied Minds, U of WashingtonForm Startup to Commercialize Algal Biofuel Technology
Ben Butkus, August 20, 2008 (Biotech Transfer Week)

WHO
Allied Minds; Rose Ann Cattolico, professor of biology, University of Washington (UW); AXI (Erick Rabins, vice president of Allied Minds and interim manager)

WHAT
Allied Minds has put up money to launch AXI, a company that will attempt to commercialize Professor Cattolico’s UW-developed technology to produce algae-based biofuels.

Some characteristics of one popular strain. Cattolico is not revealing her strain. (click to enlarge)

WHEN
Cattolico has worked with algae for more than 30 years

WHERE
- Allied Minds is based in Boston.
- Cattolico will remain on the UW faculty while taking an active role at AXI.

WHY
- Cattolico’s technology won first prize for best cleantech idea from UW’s Foster School of Business.
- Allied Minds and Cattolico/UW filed for a provisional patent for the invention, a broad patent covering the organism, methods for optimizing strains and the growth medium.
- Cattolico’s work was discovered through a UW tech-transfer program called LaunchPad, designed to mentor and advise faculty whose ideas have business potential. LaunchPad helped her win the business school award and then the VC investment.
- Allied Minds is a “pre-seed” investment company. It is currently the sole financer of AXI.

It may require a lot of land but it's a lot better choice than AGROfuel crops - for a lot of reasons. (click to enlarge)

QUOTES
- Prof. Cattolico, UW: “Eventually we’d really like to take the expertise that is here and interact with people who have photoreactors and systems where they are looking for high-efficiency organisms, so we can sort of help them optimize the beast in the pond, so to speak…”
- Rabins: “The tech-transfer offices certainly try to steer us to things that they think are sexy and promising,” Rabin said, adding that a very early-stage idea like Cattolico’s can make an attractive investment target, “as long as it is backed up by substance. She has been studying algae for 25 or 30 years, so she has an expertise that is hard to come by in a field like this.”