Date: August 19, 2011
Source: Lux Research, Inc.
A new report indicates that while investments in alternative fuel technologies declined in 2010, investment in flexible technologies that can use a variety of feedstocks or generate diverse end products increased. Lux Research (Boston, MA) said that total investment in alternative fuel technology start-ups declined to $930 million in 2010, marking a four-year low, but that investment in flexible technologies reached an all-time high of $698 million. Lux noted that investors have grown more selective, placing larger bets on fewer companies, particularly those that are flexible in terms of the type of feedstock they utilize or the end product they deliver can provide secondary revenue streams and limit the impact of price volatility. Lux also noted that investors are looking at later stage funding for companies wanting to ramp up to commercial operation. Lux said it expects new corporate investors to enter the space, such as waste management companies.
Lux analyst Andrew Soare cited the successful initial public offerings of Amyris Inc. and Solazyme Inc., both in California, and Gevo Inc. of Colorado, and the growth of companies such as Qteros Inc. of Marlborough and Mascoma Corp. of Lebanon, N.H., as evidence of the appeal of flexible technologies. "A handful of fuels-focused start-ups continue to draw investors, including waste-to-fuels companies Enerkem (Montreal) and LanzaTech (New Zealand), and cellulosic ethanol companies Qteros and Mascoma. But flexibility is part of their DNA as well, in that they derive fuels from multiple feedstocks," said Soares in the report.
PRESS RELEASE
August 17, 2011
Investors Pump $930 Million into Alternative Fuel Technologies
While overall investment in alternative fuels remained flat last year, funding for feedstock-agnostic and end-product flexible technologies powered up, says Lux Research.
In 2010, investors gave $930 million to alternative fuels start-ups, a four-year low. However, investment has dramatically climbed to an all-time high of $698 million for companies with flexible technologies that can use a variety of feedstocks or generate diverse end products. As this trend continues, start-ups stuck with less flexible technologies will be forced out of the industry.
Since 2004, high oil prices and trillion dollar markets have drawn more than 6.46 billion investment dollars to the alternative fuels industry. According to a new report from Lux Research, however, investors have grown more selective, dishing out larger amounts to fewer companies. Flexibility in feedstock or end product is their guiding principle: It increases addressable market, provides secondary revenue streams, and unshackles technologies from price volatility.
"The recent successful IPOs of Amyris, Solazyme, and Gevo all reflect the larger industry trend of investing in more flexible end-product technologies," said Andrew Soare, a Lux Analyst and lead author of the report. "A handful of fuels-focused start-ups continue to draw investors, including waste-to-fuels companies Enerkem and LanzaTech, and cellulosic ethanol companies Qteros and Mascoma. But flexibility is part of their DNA as well, in that they derive fuels from multiple feedstocks."
Among Lux Research's key conclusions:
Synthetic biology's inherent flexibility is a wise investment, but not the only one. Synthetic biology has attracted the most funding since 2004: $1.84 billion or 28.4% of the total. But investors shouldn't ignore other flexible technologies. The catalytic approaches from Virent and Elevance, for example, can produce a range of fuels, rubbers, oils, and plastics. Technologies capable of using agricultural, solid, or gaseous waste, such as LanzaTech, GlycosBio, and Ignite Energy, present further opportunities.
Investments will favor fewer companies in later stage funding. Most alternative fuel technologies today are past the point of initial seed funding, and are seeking capital to scale up manufacturing. Those closest to scale will continue to raise large Series C and Series D rounds, while less advanced companies will struggle to land moderate earlier rounds, resulting in more failed start-ups over the next few years.
Expect new corporate investors to enter the space. While energy and agricultural companies have been the main corporate investors, waste management companies have recently joined them with investments in a half dozen waste-to-fuel technologies. Expect forward looking corporations to bring additional industries into the fray, such as pulp and paper, food and beverage, and non-obvious downstream brand owners such as UPS.
The report, titled "Hedging Bets with Flexibility in Alternative Fuels," is part of the Lux Research Alternative Fuels Intelligence service and provides guidance into the factors driving alternative fuels investment, offering insights on future opportunities. Lux Research analyzed 333 investments in 170 unique start-ups since 2004, breaking down investments by technology, fuel, geography, and investment stage.
About Lux Research
Lux Research provides strategic advice and on-going intelligence for emerging technologies. Leaders in business, finance and government rely on us to help them make informed strategic decisions. Through our unique research approach focused on primary research and our extensive global network, we deliver insight, connections and competitive advantage to our clients. Visit www.luxresearchinc.com for more information.
For more information, contact:
Carole Jacques
Lux Research, Inc.
617-502-5314
carole.jacques@luxresearchinc.com.
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