Momentum: 12 Biobased ventures raise $435M in Q2 2013; 32 projects being built off the balance sheet

The investment trends

The trend away from cap raises and towards strategic relationships

The GranBio first commercial plant in Alagoas, Brazil

In the old days of the early-stage technologies, it was important and useful to measure sector health by the amount of capital flowing into companies. But, not forever. By that measure alone, Apple over the past 10 years is the most unsuccessful company int he world.

Ultimately, the proper metric will be cash flow, and the underlying revenue growth.

In this middle period where we are seeing capacity building and offtake contracting, the most revealing measure is not so much the extent to which companies are raising fresh capital, but the extent to which their partenrs are putting their own capital to work in building plants.

As companies reach for commercial scale, the primary vehicle to date has been through companies building off their own balance sheets, or through joint development agreements.

Increasingly, the trend has been towards biobased chemicals instead of fuels. Three reasons we see for this trend. One, there is stronger customer pull for biobased solutions on the chemicals side, right now. Second, the plants are smaller, and the risk capital lighter. Third, the per-tonne prices are higher and the margins more attractive, in this early commercial stage. Finally, the widespread availability of low-cost natural gas does not advantage all players, equally. Nat gas prices remain high in the EU and Asia — and the increasing activity in natgas-based ethylene plants is, because of the nature of oil & gas refining, expected to leave the industry short on naphtha, used widely in the production of fossil-based four-carbon chemicals like butadiene and BDO.

The Big Joint Development Agreements

Bunge-Solazyme

In 2011, Solazyme signed framework agreement with Bunge Limited for commercial renewable oil plant in Brazil. Both companies have entered into a framework agreement for the formation of a joint venture focused on the production of triglyceride oils in Brazil. The JV will focus on the production of triglyceride oils from sugar cane, and will result in the construction of the first commercial facility dedicated to tailored oils. The plant, which will enable the production of 30 million gallons of triglyceride oils per year, will break ground in 2012 and begin operations in 2013. The facility will be located adjacent to a Bunge owned sugar cane mill in Brazil, and will leverage both Solazyme’s breakthrough sugar-to-oil technology and Bunge’s sugarcane milling and natural oil processing capabilities.

UPM-Renmatix

The huge agreement signed last month between UPM and Renmatix is obviously aimed at the development, by mid-decade, of a commercial facility for UPM, presumably co-located at one of their pulp & paper mills. As the companies indicated, ““offering cost-competitive bio-alternatives for select petrochemicals on an industrial scale is the long term goal of this initiative”.

The focal point, here, is primarily chemicals — part of UPM’s overall BioFore stretegy which embraces both chems and fuels.

The UPM deal was not the first of type for Renmatix. Waste Management and Renmatix announced at the end of last year. they have entered into a joint development agreement  to explore the feasibility of converting post-consumer waste into affordable, sufficient-quality sugars for manufacturing biobased materials. In addition, WM has joined global chemical giant BASF and Kleiner Perkins Caufield & Byers in Renmatix’s Series C raise, raising that total round to $75M.

Evonik-OPX Bio

In May, Evonik and OPX Biotechnologies have entered into an agreement to jointly develop a list of (undisclosed) bio-based specialty chemicals. Evonik is one of the world leaders in specialty chemicals, active in over 100 countries around the world, with 33,000 employees and 2012 sales of €13.6 billion. Terms of the multi-year, milestone-based R&D agreement were not released — although it was disclosed that OPXBIO will also be able to market bio-based products resulting from the Evonik collaboration, and that agreement calls for OPXBIO to use its proprietary EDGE (Efficiency Directed Genome Engineering) technology to develop the bio-processes.

The stage-gate agreement will operate with a joint, dedicated project team overseeing all sub-projects, with the active oversight of a steering committee — very much a traditional technology development style, but jointly overseen by two companies.

In today’s Digest, we explore the big strategic investments, and 32 projects that are being funded off the balance sheet. All by following the page links below.