One of biofuels’ most-celebrated technologies falters; the struggle to raise capital claims a high-profile victim.
At some point in the imminent future, we are expecting that LS9′s investors will announce the fact that the company’s intention to shut down has been internally tipped, and its staff is dispersing. But maybe they won’t. Bad news travels slow.
And it may be some time before we know the exact fate of the company’s assets and technologies — what form a next phase may take, if any.
It’s not wholly unexpected. Four weeks ago in Top 10 Biofuels Predictions for 2013, we observed:
“It’ll be another tough year for financing — this year, the pain will shift from cellulosic biofuels to the synthetic biology wave as they move from demonstrations to full-scale commercial. We see at least one major company failure in the synthetic biology space when it is unable to hit milestones fast enough to raise affordable capital. The problem? Too many predators and competitors are enjoying the hot sugary waters in the fermenters, and several companies have seen side-reactions knocking down their yields.”
The financing struggles
The company had been known for its awesomely promising technology, leisurely pace towards commercialization compared to synth-bio companies like Amyris, brutal fundraising struggles, and for its regular turn-over in CEOs. The original acting CEO, Doug Cameron, gave the reins to Bob Walsh in July 2007, who handed off to Bill Haywood in October 2008, and Ed Dineen arrived in December 2010.
The capital raises were relatively light along the way – the company always balancing the need for cash against maintaining valuations and “giving the company away”.
Let’s look at the funding rounds as they happened.
Series A, 3/07, raised $5 million from Khosla and Flagship.
Series B, 10/07, raised $15M and added Lightspeed to the investor base and board.
Series C, 10/09, raised $25M and added Chevron Technology Ventures’ venture capital arm, CTTV Investments.
Series D, 12/10, raised $30M and added Blackstone.
When Haywood arrived in 2008, the company had hoped to raise $100 million to support its demonstration phase. Instead, it made do with less and, under CEO Ed Dineen, focused intensely on its development of fatty alcohols – a target of its partnership with Proctor & Gamble — and biodiesel production. Two product development agreements were established with P&G, the first in 2009, the second in 2010 – but we had not heard of extensions or renewals after that.
The rocky toad to consolidated bioprocessing
The technology was simple to describe, awesome in ambition, tough to execute. LS9 aimed to genetically modify e.coli to induce the bacteria to produce hydrocarbons and high-value alcohols — like Amyris (which was modifying yeast, by contrast) it was part of the wave of “drop-in fuel” companies that were producing biofuels that required no infrastructure change.
It’s special appeal: LS9 could make the conversion from sugars to products in a single step — its microbe was a stand-out in the days when one-step processes were hailed as the “Holy Grail of Consolidated Bioprocessing.” Three companies made substantial progress down that route: Mascoma, Qteros and LS9 – today, only Mascoma remains.
The dextrose-sucrose challenge
When US dextrose prices soared, the collective attention of companies like Amyris, Solazyme and LS9 shifted focus to Brazil (and lower-cost sucrose from sugarcane) for lower-value products, and to renewable chemicals and other higher-value items for geographies where feedstock costs were high.
In July 2011, LS9 opened an office in Sao Paulo and Dineen trained the company’s focus on Brazil, noting “Not only is Brazil an attractive market for our biofuel and biochemical portfolio, it is also strategically important to us as a source of feedstock, and for strategic partnerships with Brazilian companies.” But the company had not, after 18 months, landed a signature Brazilian partnership.
LS9 was the first company to prove that it could make its drop-in fuels from cellulosic sugars in one step, but that promising avenue of R&D slowed as the company focused on driving commercialization of nearer-term opportunities.
The company had shared with Virdia in a $9 million grant from the Department of Energy (DOE) together with partner Virdia to improve and demonstrate an integrated process to convert biomass feedstocks into fermentable sugars and then into diesel and other fuel and chemical products – but dextrose was the feedstock of choice at the Florida demonstration facility.
The company’s prospects brightened substantially in 2009-10 when it acquired that (extremely low-cost) demonstration site in Okeechobee, Florida – buying a site and equipment out of bankruptcy. The demonstration plant moved from acquisition to opening by September 2012, where the microbes were introduced into a 135,000 liter fermenter environment. Quickly, LS9 reported “The first run at 135,000 liter scale produced several tons of fatty alcohol with “excellent replication of technical metrics”.
The synthetic biology challenge
In The Hillary Step, in profiling LS9 we observed:
A couple of advanced fermentation technologies have had substantial hiccups at the final transition to full commercial scale production – so nothing is going to be certain, in the public’s eyes, until that step has been successfully negotiated. Plus, LS9 is likely to need another capital round for its equity requirements in funding full commercialization – hot technologies have a lot of friends, but its been tough in the equity markets to find equitable prices of late.
Last May we reported:
A friend of the Digest writes: “I was in Brazil last month and got an earful about that from a very high up there on [Amyris]. If their shiny high grade fermenter was not up to snuff they are really in trouble…having worked in nice university labs and clean room pharmaceuticals they did not know what was awaiting them in the down market dirty world of biofuel. You can’t make biofuels with anything you got to keep that clean.”
At the time, we commented: “There are two polar views one can take of that comment: Panicked alarmism, or a lonely voice in the wilderness leading us back to real expectations. Perhaps, and probably, the truth lies between those extremes.”
There remain a lot of surviving companies in the wave that came to the biofuels space working with modified microorganisms and focused on the opportunities beyond first-generation technologies and fuels: Solazyme, Cobalt Technologies, Algenol, Mascoma, Sapphire Energy, Joule, Proterro, Gevo, Amyris, Butamax, INEOS Bio, Lanza Tech, Coskata, and Aurora Algae among them.
Cobalt and Aurora have long since trained their focus on higher-value products and certainly now Amyris too (though Total has continued to train Amyris technology on the fuels sector). Solazyme, Joule, Mascoma, LanzaTech and INEOS Bio are chasing a portfolio of fuels and higher-value products. Proterro is focused on producing intermediate renewable sugars. Coskata has pivoted towards natural gas as a feedstock. Leaving only Butamax, Algenol and Sapphire Energy avowedly focused on a fuels-first strategy.
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