Big companies line up to invest in cellulosic — Mascoma is latest beneficiary, gets $81M

Venture Beat — Tue, 06 May 2008 06:38:01 -0700

With oil past $120 a barrel and possibly headed to $200, cellulosic ethanol companies are looking like a smarter investment choice every day. Following the increase of Range Fuels’ second funding to $166 million, its competitor Mascoma has pulled the wraps off an $81 million funding of its own, with $10 million coming a major oil and gas producer, Marathon Oil Corporation.

Range, Mascoma, Coskata and others are all racing to raise huge amounts in an attempt to bring the world’s first full-scale cellulosic plant online. The stakes are high: If the process proves to be cheap enough, investors will be eager to pour money into new plants. On the other hand, waiting to see if competitors fail won’t be particularly helpful — each company has its own proprietary process.

Mascoma will begin production this year at a demonstration plant in Rome, New York, but is also planning facilities in Michigan and Tennessee. By comparison, its two largest competitors will build a single, big plant each, a bet that could presumably result in a more spectacular success, or failure.

Backing each company is a network of high-profile investors, some of whom overlap. General Motors has investments in both Coskata and Mascoma. Morgan Stanley is with Range Fuels, which also counts Khosla Ventures as an investor — and Khosla has invested in Mascoma, as well. Taking venture fundings and government grants together, Range Fuels is the most heavily funded, Mascoma coming second with just over $200 million now, and Coskata third.

It’s possibility none of the three emerge with a competitively priced product — something that also hinges on whether oil prices continue to climb, or fall back to somewhat saner levels. If all three find their methods too expensive, there is still a constellation of smaller cellulosic startups waiting for their own turn in the spotlight, like Zeachem.

Other investors in the round included Khosla, Flagship Ventures, Atlas Ventures, General Catalyst Partners, Kleiner Perkins Caufield & Byers, Pinnacle Ventures and Vantage Point Venture Partners. Out of the total amount, $20 million was venture debt provided by Pinnacle.