August 24, 2011

VentureWire

Commercialization Isn't Cheap, But Coskata Is Raising Needed Capital

Warrensville, Ill.-based Coskata raised $20 million of a targeted $40 million round, according to a regulatory filing. Providing the first tranche were insiders -- Blackstone Group, Khosla Ventures, Total Energy Ventures International, which is part of oil company Total SA, Advanced Technology Ventures, Globespan Capital Partners, General Motors Corp., Arancia, and Sumitomo, the company said in a statement. It expects to close the round in the last quarter of the year.

In a crowded space, Coskata stands out because its approach to breaking down cellulose in biomass and converting it into fuel is cheap and simple, said Perlman, partner at venture firm Greatpoint Ventures, which invested in Coskata, and a board member at Coskata.

Its yield is the highest in the industry -- producing 100 gallons of ethanol per ton of wood biomass at its current demonstration facilities, according to William Roe, the company's chief executive and president.

Both Roe and Perlman declined to disclose costs, but Perlman said they are much lower than those of competitors. One of Coskata's competitors is Mascoma Corp., also venture-backed, which said earlier this year that it expects to have production costs of less than $2 per gallon by 2013.

Coskata first gasifies biomass, such as wood or municipal solid waste, creating synthetic gas. It then uses a microbe to ferment the gas into fuel. The process is demonstrated at a facility opened in 2009 in Madison, Pa.

Coskata is now preparing to build a commercial facility in Alabama. The U.S. Department of Agriculture is guaranteeing a $250 million loan for the facility. The request for the loan guarantee came from Silicon Valley Bank, according to the Department of Agriculture.

The company originally planned to produce 55 million gallons per year at the facility, but has recently increased the estimate to 67 million due to efficiency improvements, according to the Department of Agriculture.

Coskata plans to both license its technology, as well as build and own, and invest in commercial facilities alongside its strategic partners.

"Coskata will require significant amounts of capital, but it's really about risk-reward," said Perlman. "We felt that in order to really change the world, to do things that, if they are successful, will have significant impact, it means taking a significant amount of risk."

Perlman said that in general the most successful energy companies are building their own facilities, and that's the model that his venture firm hopes its portfolio companies would emulate, though some decided to not follow this plan.