Biofuels continue to get project financing -- from VCs
Biodiesel and ethanol continue to attract project financing, with the announcement that New Energy Capital has committed to funding a 55m gpy ethanol plant in Michigan, with total construction costs expected to reach $86M (pdf of the press release is here). This follows similar news from New Energy Capital, Seattle Biodiesel, and others.
What's interesting about this from a venture capital perspective is that several venture capital firms are getting into these biofuel project finance deals indirectly -- by funding the project finance firms. Rustic Canyon and others recently funded US Renewables Group, and New Energy Capital raised $30M from Vantage Point and CalSTRS.
So in effect, these venture capital firms are providing project financing for biofuel facilities. And others are looking at the possibility. It's an interesting development. It reflects the fact that technological advantage isn't necessarily going to be a determinant of project success in biofuels as much as geographic location, capital efficiency and strategic relationships might be. And the way it's happening reflects that VCs may be looking to get into biofuels, but are finding it hard to find technology pure-plays in the space, where they presumably could apply their core competency in identifying winning technologies -- and instead are giving their capital to project financiers who presumably have better expertise in funding "steel in the ground". This, despite the fact that project financing often targets lower returns than venture capital investments aim for. ...Of course, these venture capital firms would likely counter-argue that their expected returns in these particular cases are competitive, and that there are additional strategic benefits to having good exposure to real-world use of energy technologies. No matter what, it's an intriguing development.
An early sign of a growing trend of indirect investing by cleantech VCs? Or a technology-specific solution that won't be applied in other cleantech market segments? These investments raise some interesting questions.
[10/25 update: US Renewables Group has made another investment, acquiring Bottle Rock Power Corporation, a geothermal operation. These project plays, as noted, go beyond biofuels.]
What's interesting about this from a venture capital perspective is that several venture capital firms are getting into these biofuel project finance deals indirectly -- by funding the project finance firms. Rustic Canyon and others recently funded US Renewables Group, and New Energy Capital raised $30M from Vantage Point and CalSTRS.
So in effect, these venture capital firms are providing project financing for biofuel facilities. And others are looking at the possibility. It's an interesting development. It reflects the fact that technological advantage isn't necessarily going to be a determinant of project success in biofuels as much as geographic location, capital efficiency and strategic relationships might be. And the way it's happening reflects that VCs may be looking to get into biofuels, but are finding it hard to find technology pure-plays in the space, where they presumably could apply their core competency in identifying winning technologies -- and instead are giving their capital to project financiers who presumably have better expertise in funding "steel in the ground". This, despite the fact that project financing often targets lower returns than venture capital investments aim for. ...Of course, these venture capital firms would likely counter-argue that their expected returns in these particular cases are competitive, and that there are additional strategic benefits to having good exposure to real-world use of energy technologies. No matter what, it's an intriguing development.
An early sign of a growing trend of indirect investing by cleantech VCs? Or a technology-specific solution that won't be applied in other cleantech market segments? These investments raise some interesting questions.
[10/25 update: US Renewables Group has made another investment, acquiring Bottle Rock Power Corporation, a geothermal operation. These project plays, as noted, go beyond biofuels.]
posted by Rob Day at 7:48 PM
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