Qteros Finds Ways Around Funding Pitfalls for Biofuel Startups

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building new plants from scratch. However, the four-year-old startup has yet to find an ethanol producer willing to fork over cash to license its technology. To gain the confidence of such partners, the firm still needs to generate more proof that its system for making ethanol works on a larger scale than it has shown in its own labs. So the company plans to provide this evidence by making larger batches of ethanol at the National Renewable Energy Laboratory in Golden, CO, and its pilot facility under development in Chicopee, MA. By the end of 2011, McCarthy said, the company expects to have data from those tests to show to commercial partners.

Despite its lack of a licensing deal, Qteros (formerly known as SunEthanol) has gained equity investments from backers of strategic value in the ethanol market such as BP’s (NYSE:BP) venture arm and San Antonio-based Valero Energy (NYSE:VLO), a major operator of oil refineries, ethanol plants, and gas stations. Its other investors are Battery Ventures, Camros Capital, Long River Ventures, Soros Fund Management, and Venrock Associates.

Qteros’s big draw is its consolidated approach to making ethanol from non-food sources like corn stalks, sugar cane leftovers, and wood chips. Normally, companies need expensive enzymes to break down such plants into sugars, which are then fermented with yeasts into ethanol. Qteros’s bacterium, dubbed the “Q Microbe,” does all those jobs, according to the company. Its process could reduce the cost of making cellulosic ethanol.

Still, there’s debate about whether the U.S. needs additional ethanol for transportation fuel needs. The issue, sometimes called the “Blend Wall,” is that country already nearly produces enough ethanol for making gasoline that contains 10 percent ethanol. Ethanol producers are lobbying to raise mandated limits on how much ethanol can be mixed into gasoline from 10 percent to 15 percent. McCarthy said that he believes that those limits will be raised to at least 12 percent.

Qteros is developing strains of its bug that could also be used to make chemicals from plant materials as opposed to using petroleum. South San Francisco-based Solazyme, for example, is a biofuel developer that is also using its algae-driven process to make ingredients for beauty products and food. Yet Qteros is pinning its initial commercial prospects on the ethanol market.

“Our view is that cellulosic ethanol is the here-and-now market,” McCarthy said, “and that’s confirmed by the various partner discussions we’ve been having.”

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One response to “Qteros Finds Ways Around Funding Pitfalls for Biofuel Startups”

  1. Ashley says:

    Very thoughtful and well-written content.

    Related, startups and entrepreneurs seeking funding may also want to join http://www.adwebix.com – an online hub connecting entrepreneurs with investors and a resource dedicated to sustainable innovation.

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