Early-stage investment firm Allied Minds last week said that it has invested an undisclosed amount to launch AXI, a company that will attempt to commercialize technology developed at the University of Washington that uses algae strains to produce biofuels.
Allied Minds’ investment is in line with a recent surge in venture capital investment in US cleantech companies that, according to a recent Ernst & Young report, is at an all-time high despite a downturn in overall VC bets.
The formation of AXI around the UW technology, which won an intra-school prize for best cleantech idea in a recent business plan competition held by UW’s Foster School of Business, also underscores how university-based business plan competitions can provide promising academic innovations with the exposure needed to attract outside investors.
The technology behind AXI’s formation was developed by Rose Ann Cattolico, a professor of biology at UW. Cattolico, who has worked with algae for more than 30 years, has developed a highly lipophilic, fast-growing algae strain that may be able to produce high-quality oil rapidly and economically.
According to Cattolico and Allied Minds, algae are fast becoming the feedstock of choice for producing biodiesel because significant biomass can be produced on non-arable lands – thus skirting the “fuel versus food” debate – and because CO2 supports their growth.
“Eventually we’d really like to take the expertise that is here and interact with people who have photoreactors and systems where they are looking for high-efficiency organisms, so we can sort of help them optimize the beast in the pond, so to speak,” Cattolico said.
Cattolico and UW’s tech-transfer office have filed for a provisional patent for the invention, which she described as a “broad umbrella patent that is covering the organism methodologies for optimizing strains and even medium.” She declined to identify the name of the organism from which the fuel-producing strains have been derived.
“I think everybody is looking for the [organism] that will be perfect,” she said. “And there is no perfect organism. People were asking me to do things that were just biologically impossible; algae just don’t do that.
“We have to realize [that] we are dealing with living organisms,” she added. “We want to have organisms that can grow under a specific set of physiological conditions, and optimize it for those conditions, keeping in mind that we don’t want an exotic introduced in an area where you’re going to have a huge problem as a result of that organism being there.”
Cattolico’s invention gained recognition with the help of a UW tech-transfer program called LaunchPad, which is designed to mentor and advise faculty who have a promising idea for a startup company.
“The tech-transfer offices certainly try to steer us to things that they think are sexy and promising.”
One facet of this program is pairing the faculty member with students from the Foster School of Business, which UW did by matching Cattolico with students Eric Gertsman and Carrie Stearns. Together, the three entered AXI precursor Voltan Biofuels into the 2008 Foster Center for Innovation and Entrepreneurship business plan competition and won the award for best clean-tech idea. The top award for best idea, which carries a $25,000 purse, was won by another team.
Nevertheless, Cattolico said that “there were something like 300 angel investors and [companies] like Allied Minds at this competition, so we had tremendous exposure as a result, and lots of people inquiring about our work.”
UW’s tech-transfer office also maintains a network of potential investors through LaunchPad, among them Allied Minds, a Boston-based self-described “pre-seed” investment company. After its recent investment, the VC firm is now currently the sole financer of AXI.
Erick Rabins, vice president of Allied Minds and interim manager of the new company, declined to disclose the amount of Allied Minds’ investment. However, last year, after Allied Minds invested in University of Colorado startup company Illumasonix, CEO Chris Silva said that the typical investment was in the range of $1 million but varies depending on the technology (see BTW, 5/21/2007).
Allied Minds’ strategy is to maintain relationships with a network of tech-transfer offices from some 25 US universities and research institutes, including UW, which is how it became aware of Cattolico’s invention, Rabins said.
“The tech-transfer offices certainly try to steer us to things that they think are sexy and promising,” Rabin said, adding that a very early-stage idea like Cattolico’s can make an attractive investment target, “as long as it is backed up by substance. She has been studying algae for 25 or 30 years, so she has an expertise that is hard to come by in a field like this.”
But are biofuel-producing algae, and biofuel production in general, sexy investments? According to a report released earlier this month by Ernst & Young, based on data provided by Dow Jones, they are.
According to the report, VC bets on US cleantech companies grew by 41 percent to $961.7 million in the second quarter of 2008, up from $683.5 million in Q1 2008, making it the highest total cleantech investment on record. For comparison, overall VC investments in Q2 were down by nearly 8 percent from the first quarter, E&Y said. Year-over-year cleantech investment has followed the same upward trend, growing 83 percent from the second quarter of 2007.
However, enthusiasm in biofuels was tempered: the alternative fuels segment – which was made up entirely of biofuel transactions – was the third-largest cleantech investment in Q2, attracting $129 million, down 44 percent from the previous quarter. Alternative fuels made up about 13 percent of the market, trailing energy/electricity generation and energy efficiency companies.
“Investment in increased efficiency can have a shorter payback period since many of these technologies are relatively capital efficient compared to capital intensity of a manufacturing-heavy segment like biofuels,” Joseph Muscat, Americas director of cleantech and venture capital for E&Y, said in a statement.
Still, it’s not like there are that many alternative energy and specifically biofuel investment opportunities available, Rabin told BTW. These have only popped up on the radar screen with rocketing fuel prices of the past few years, he said.
For her part, Cattolico said she is grateful for the opportunity to participate in a commercial venture and be able to apply her life’s work to real-world problems.
“I feel very strongly that this is a contribution to our society at large,” Cattolico said. “We really do need some alternative methods of energy. It would be nice to have a Manhattan project for wind energy, solar energy, et cetera.”
Although Cattolico will remain a professor at UW, she said she will be taking a very active role in AXI. According to Rabin, she will act as the company’s leading scientific advisor.
“The university is very supportive of my work, because it benefits them, as well, if I am successful,” Cattolico said. “I never do things halfway. I have committed to this company and the ideas, [and] I am going to be there for quite some time.”