Jatropha 2.0 arrives: Koch's FHR, LIFE Technologies invest in SG Biofuels

September 14, 2010 |

In California, SG Biofuels announced it has completed a $9.4 million Series A financing with proceeds from Koch subsidiary Flint Hills Resources, Life Technologies Corporation and participation from existing investors. The company also confirmed previous reports that Life Technologies had invested in the company in Q4 of last year in a seed round.

The financing will support the company’s efforts to advance Jatropha as a high-yielding, low cost feedstock for diesel, jet fuel and petrochemicals.

The unusual amount reflects that the Series A financing round was oversubscribed.

SG Biofuels also announced that Anthony Sementelli, CFO of Flint Hills Resources, and Nathan Wood, VP of Life Technologies’ Genomics Technologies business segment, have joined the company’s board of directors.

Some background for the transaction

Earlier this year, SG Biofuels and Life Technologies formed a strategic alliance, and recently announced they have completed the sequence of the Jatropha genome.

The company’s integrated breeding and biotechnology approach forms the foundation for its JMax Jatropha Optimization Platform, providing research agencies, growers and plantation developers with access to the company’s germplasm library, the genome sequence, molecular markers and advanced biotech and synthetic biology tools to optimize elite Jatropha cultivars for unique growing conditions around the world.

The company has also introduced JMax 100, an elite Jatropha cultivar optimized for growing conditions in Guatemala, with projected yields 100 percent greater than existing commercial varieties, resulting in a 300 percent increase in profits for growers.

A little more about Koch FHR and LIFE

Flint Hills Resources is a refining and petrochemical company based in Wichita, Kansas. A wholly-owned subsidiary of Koch Industries, it has completed acquisitions and capital expenditures of more than $5 billion since 2002.

Life Technologies had sales of $3.3 billion in 2009, employs approximately 9,000 people, has a presence in approximately 160 countries, and possesses a rapidly growing intellectual property estate of approximately 3,900 patents and exclusive licenses.

Reaction from SG

“We’re thrilled to close the round on time in a tough financing environment and to have Anthony Sementelli and Nathan Wood join our board. Strategically, we now have a strong upstream partner in LIFE Technologies, and a strong downstream partner in Koch FHR,” said SG Biofuels CEO Kirk Haney in commenting to the Digest on the deal. “These guys have the deep expertise in biotechnology and the petrochemical space. Our customers now see strong investors and partners that can help leverage the investments they are making in jatropha.”

Impact of the capital raise

An on-time, oversubscribed round creates new options. Expect SG to  expand rapidly from its focus on Central America, and to add Southeast Asia, Africa and India to its focus – both in terms of developing cultivars based on its JMax Optimization Platform, and adding sales & marketing resources.

Jatropha – how big is big

SG is focusing on commercial applications in the 10,000+ hectare (25,000+ acre) range. Based on the performance of the company’s classically-developed jatropha cultivars, it is currently capable of generating jatropha oil at $1.40 per gallon. The company expects that in its work with LIFE technologies on yield improvements – including development of the first genetically modified jatropha – that its customers will be able to produce crude jatropha oil at below $1.00 per gallon.

SG – how big is big

Today, jatropha cultivation has reached 5 million hectares, and is expected to reach 15 million hectares by 2015. SG is expecting to “have the lion’s share of that market”. For now, the company is now working with initial, undisclosed customers.

The Digest’s take

Koch FHR, as one of the biggest private companies in the world and certainly a giant in the petrochemical space, could have made a strategic investment in a wide variety of companies. Yet they have not done so in biofuels to date. It’s significant that they made their first bet on jatropha. Not insignificant that Flint Hill’s CFO is joining SG’s board – a sign that the company sees the investment as of strategic importance.

Why SG? As previously reported in our articles on jatropha, it is easier to understand SG Biofuels as a company focused on the economics of jatropha rather than the genomics – though the improvements in the performance of SG’s cultivars are reported to be substantial.  The improvements in the yields are a consequence of SG’s drive “unlock the value of jatropha”. A lot of companies are excited about the performance of jatropha oil as a fuel feedstock – but have been disappointed in the yields from the plantations, which were not sufficient to maintain jatropha as a business at industrial scale.

As Haney has said on a number of occasions, “jatropha 1.0 did not fail, it was the business model of jatropha 1.0 that failed,” referring to the practice of not systematically improving the yields and geographies of the germplasm, and counting on seeds from (essentially wild) jatropha from India to thrive in, say, low-intensity agriculture in Africa.

“Jatropha 2.0 is here,” says SG. Koch FHR and LIFE agree, having done the deep dive through the fundamentals and the pro-formas. We agree, though we will be excited to see a modest upgrade to jatropha 2.1, which would represent the disclosure of its initial customers, and an initial project at scale.

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