Holy $60M, Batman! LanzaTech raises huge Series D round, Mitsui leads, joins board

New investors in monster haul include Siemens Venture Capital and CICC Growth Capital Fund. 

Financing for first commercial plant previously secured; new investment “to extend the core platform and further develop the product portfolio”.

In Illinois, LanzaTech announced that it has raised $60M in a first close of its series D investment round.

Led by Mitsui & Co. with a $20M investment, the $60M round includes new investors Siemens via its Venture Capital unit, CICC Growth Capital Fund I and existing investors: Khosla Ventures, Qiming Venture Partners, K1W1 and the Malaysian Life Sciences Capital Fund. Existing investors Soft Bank Capital, PETRONAS Technology Ventures, and Dialog Group were not among the announced investors in this first close.

“The aim of our investment,” Mitsui’s management said in a released statement, “is to create a new business where Mitsui actively contributes to developing next-generation biofuels and chemicals made from waste gases. Through this investment, Mitusui is going to be involved in marketing of LT’s technology, business development and product take-off worldwide. To strengthen Mitsui’s involvement, Mitsui will appoint a director as well as send personnel to LanzaTech.”

Concurrent with the news of the investment, Toru Ryoso, Operating Officer, Energy Business Unit II at Mitsui was appointed to the LanzaTech board.

The investment round

The company had originally targeted $60-$80M for this round; a second close, which may comes as soon as summer 2014, could be expected to reach the higher end of the range.

The investment will not be used towards the first commercial plant, opening in 2015. That first commercial facility, is fully financed by BaoSteel, one of the largest steel manufacturers in China, and is expected to be operational in 2015 and will use steel mill off gases to produce fuels and chemicals. The LanzaTech-Baosteel New Energy Joint Venture will operate the plant and it will produce ethanol and 2,3 Butanediol at an annualized capacity of 20,000tpa (10-12 millions gallons per year). A planned second commercial with Shougang is targeted to produce 25 million gallons of fuel per year.

The Series D funds, rather, will be used to extend LanzaTech’s core gas fermentation platform and further develop LanzaTech’s product portfolio. To date, products include fuels such as ethanol or jet fuel and commodity chemicals such as butadiene used in nylon production or propylene used in plastics manufacture.

The technology

LanzaTech’s gas fermentation platform disrupts the current highly centralized global energy system by enabling the regional production of low-cost energy from local wastes and residues, including gases as varied as industrial flue gas, gasified biomass wastes and residues, biogas, and high-CO2 stranded natural gas.

The company has been deeply involved with efforts to utilize CO2 for gas fermentation. One reason. ““The steel waste gas source typically contains 40-50% CO, with only 1-2% H₂ (the balance being CO₂ and N₂),” LanzaTech co-founder Sean Simpson noted some years back.

The costs

Capital costs for an ethanol gas fermentation plant based on steel mill off‐gases vary based on region. Estimates from China suggest capex factors ranging from $3 to 4 per annual gallon.

Why so low? “LanzaTech’s continuous fermentation of raw steel mill gas has shown no impact on microbial viability, growth or productivity when compared to a synthetic gas equivalent,” LanzaTech co-founder noted a few years back. “We are able to virtually eliminate capital cost associated with gas conditioning. That’s a major advantage over existing gas to liquid gas conversion technologies.”

The business model

LanzaTech has a highly leveraged model based on building long term, strategic partnerships with leaders across the supply chain. In the steel industry: Baosteel, Shougang, SiemensVAI, Harsco and others; in the fuels industry: PETRONAS and Indian Oil: in chemicals: Evonik, Invista and SK Innovation; among end-users: Virgin Atlantic.

The Demonstration facilities

LanzaTech has successfully operated two Demonstration facilities in China (one with Baosteel in Shanghai and one with Shougang near Beijing) each with 100,000 gallon/year ethanol capacity. The facility with Shougang received a world first sustainability certification from the Roundtable on Sustainable Biomaterials for the production of bioethanol.

In addition the company operates:

A demonstration facility in Taiwan (12,000 gallon/year ethanol capacity) with LCY and China Steel

An integrated syngas to Butadiene Demonstration facility planned Q2 2015 in Korea with SKI

The company is finalizing an MSW demonstration facility in Japan (6,000 gallon/year ethanol capacity) expected to be ready by Q4 2014

The Freedom Pines facility in Georgia

“Our Freedom Pines facility in Georgia plays a key part in our chemicals strategy,” CEO Jennifer Holmgren told the Digest. “Our microbe has developed significant capabilities for the production of a variety of chemicals thanks to the work of our synthetic biology team. We have begun retrofitting the plant to enable our technology to be integrated into the existing infrastructure and we expect to begin production of chemicals in 2015. This timeline is dependent on the successful integration efforts currently underway.”

How large investment rounds get done in a tough environment

Here’s the LanzaTech story as seen by investment round:

Seed – 2005/06 – New Zealand-based Angel investors and secured grants.

Series A – 2007 – $3.5M, led by Khosla Ventures
Success in the lab

Series B – July 2010 – $18M, led by Qiming Ventures
Successful pilot plant construction and operation (1000 liter fermenter, at New Zealand Steel at Glenbrook, near Auckland, for more than 2500 hours and continuously for more than 500 hours.)
2 products demonstrated
2 patents granted, 43 patent apps filed

Series C – 2012 – $55.8M, led by Malaysian Life Sciences Capital Fund
Two demo units under construction
6 products demonstrated
4 patents granted, 67 patent apps filed
Demonstrated alternative feedstocks

Also in 2012, LanzaTech closed on $15 million in debt financing from Western Technology Investment.

Series D – 2014 – $60M (first close), led by Mitsui
Two demo plants completed and exceeding expectations
10+ products demonstrated
77 patents granted, 220+ patent apps filed
Within 24 months of first commercial

As an example of how to “get it done,” consider the Siemens relationship. As background, Siemens Metals Technologies and LanzaTech signed a ten‐year co‐operation agreement in 2013, to develop and market integrated environmental solutions for the steel industry worldwide.

Siemens and LanzaTech are working together on process integration and optimization, equipment procurement, government relations, and on the marketing and realization of customer projects. So, here, the investment capital solidifies an already strong relationship based in business development and technical steel integration.

Reaction from LanzaTech and its investors

“In a tough capital raising market I am proud that we’ve attracted funding from both existing and new investors, including several of our strategic partners,” said Jennifer Holmgren, CEO of LanzaTech. “The funding validates the confidence our investors have in us, the strength of our technology, the quality of our partnerships and the opportunity to make a big impact on the global fuels and chemicals markets through capturing and reusing carbon.”

“LanzaTech’s unique ability to reduce or eliminate the release of waste gases like CO and CO2 has dramatic consequences on the global fight against air pollution – it meets a survival-driven need for places like China and India.” said Andrew Chung, a partner at Khosla Ventures who serves on the board of LanzaTech.  “LanzaTech offers an effective and capital efficient carbon capture and reuse solution, which is why we have been able to fund commercialization via major industrial partners.  It’s cleantech done right.”

“LanzaTech demonstrates that the combination of cutting-edge technology and an outstanding executive team can raise money in the most difficult of fundraising markets,” added Gary E. Rieschel, the Founding Managing Partner of Qiming Venture Partners

“LanzaTech is pioneering new technologies that are changing the energy landscape as we know it,” said Jim Messina of The Messina Group, who serves on the board of LanzaTech. “Their limitless growth potential and the potential positive impact on our environment are just two of the many reasons investors are excited to be a part of this growing company”.

“I believe that green growth companies like LanzaTech hold the key to our future,” said Sir Stephen Tindall, of K1W1 an investor in LanzaTech.  “LanzaTech’s innovative solution provides good financial return as well as environmental benefits. Truly a triple bottom line solution.”

“With this unique technology our customers will be able to reduce their ecological impact,” said Karl Purkarthofer, Chief Strategist Siemens Metals Technologies, “while also receiving an economic benefit. This investment proves our strong commitment in innovation and further strengthens our leading position as a technological front runner in green solutions for the metals industry.”

The Bottom Line

Two thoughts:

1. Think W2V: waste to value. In this case, waste carbon, which has been endlessly covered as an emissions or venting story. But why not as an efficiency story or a recovered value story. Not in this case, buried treasure, but vented treasure.

2. Attitude creates Altitude. They say that good companies succeed in good markets, but great companies succeed in tough markets. Though this is just a step in the journey, it’s an important one, and validation of the strategy and team.