LS9, a company which is using a genetically modified version of e.coli bacteria to make diesel from biomass, on Thursday announced it has raised $25 million in its third round of funding. Chevron Technology Ventures’ venture-capital arm, CTTV Investments, participated in the round, making this the latest biofuel project from the big oil company. In 2008, Chevron announced a development deal with algae-based fuel company Solazyme, and has been working on a cellulosic ethanol joint venture, called Catchlight Energy, with forest-product company Weyerhaeuser.
While having a big oil backer is a good sign for a young startup, LS9’s round was markedly smaller than the $65 million the company was seeking back in February and well below the $75-$100 million it had hoped to raise last October.
The smaller round could indicate sluggish investor interest in biofuels other than algae-based fuels. After more than a year of slim venture-capital funding for biofuels — as feedstock costs rose, biofuel prices fell and critics raised questions about biofuels’ green cred — we saw a bump in deals this summer – although mostly for algae-based startups, such as Synthetic Genomics, Solix Biofuels and Solazyme. At least one exception has been LS9 competitor Amyris Biotechnologies, which in August raised $24.7 million of what it hopes will be a $62 million round.
The smaller round also could suggest a strategy change that might require less cash. Aside from fuel, LS9 in May announced it is developing technology to make sustainable chemicals in a partnership with Proctor & Gamble.
LS9 started up a 1,000-liter pilot plant in South San Francisco last year and is building a 2.5-million-gallon demonstration plant expected to be completed next year. Aside from CTTV, LS9 also got renewed backing from its existing investors, Flagship Ventures, Khosla Ventures and Lightspeed Venture Partners.