Algal Scientific’s Breakthrough Animal-Health Discoveries Draw Investor Interest

Algal Scientific, a Northville, MI-based startup focused on improving animal feed and human nutrition as well as wastewater treatment, said last week that it has raised $3 million in new venture capital funding. Participating in the round were Evonik Venture Capital, based in Germany; San Francisco-based Formation8 Partners; and Independence Equity, which is based in Chicago.

The announcement caps off a busy time for Algal Scientific. In November 2012, the company won the $500,000 grand prize at the Accelerate Michigan business plan competition. In July of the same year, it won the $25,000 grand prize in the “emerging company” category at the Great Lakes Entrepreneur Quest competition. “During the last 14 months, we’ve made a lot of progress using the money we won at Accelerate Michigan toward efficacy trials,” says Geoff Horst, Algal Scientific’s CEO and co-founder.

Algal Scientific has created Algamune, which Horst claims is the world’s first beta glucan that uses a proprietary strain of algae instead of yeast. Beta glucan is a chemical that stimulates the immune systems of humans and animals. It helps animals, particularly those being raised in aquaculture, fight infection and grow faster with less food.

The problem with beta glucan, Horst says, is that it has traditionally been made from yeast through an expensive process. Because of that high price, Horst says beta glucan’s commercial appeal has been limited. “You find it in the aquaculture and human markets, but it hasn’t been used on chicken and pigs because it doesn’t offer a positive economic return,” he explains. “That’s where we come in. We can make it much cheaper.”

Deriving beta glucan from algae instead of yeast leads to lower processing costs, Horst says—about one-quarter of the price of the yeast-derived chemical. “We’re very excited about this because nobody else has been able to produce beta glucan with algae,” Horst says.

To prove that Algal Scientific is onto something, it has paid for one pig trial, two poultry trials, one shrimp trial (with another starting next week), and one grass carp trial. Horst calls it an important step toward commercialization and getting farmers to trust Algal Scientific’s data.

“The data was good, especially in chickens, which is where we can have a significant impact because of the overuse of antibiotics to help chickens grow faster,” he says. “We can show the same growth improvements, but without antibiotics. We want to give farmers a natural alternative that makes economic sense.”

Horst says that Algal Scientific is targeting massive chicken producers like Tyson and Perdue, because that’s where he believes his company can make the most societal change. “There’s a lot of consumer pressure in the United States, and the United States is 10 years behind Europe,” he adds.

Algal Scientific was formed in 2009 based on Horst’s PhD work at Michigan State University focusing on the nutrient physiology of toxic algal blooms. While at MSU, Horst developed the company’s patented hypertrophic treatment process, which began as a way to treat wastewater from breweries and dairies with algae and transform it into biomass that could be used as fertilizer.

Horst realized his team could make beta glucan from algae, so the company pivoted toward that and put the wastewater treatment part of the business on the back burner. Right after the company made that decision, it was approached by what Horst describes as a big wastewater concern to participate in a trial to prove the efficacy of its process. That part of the business has since been revived and Horst says he expects to announce a deal regarding wastewater treatment within the next six months. “Essentially,” he says, “we have two separate technologies, and it just so happens that both are hitting on all cylinders.”

At the moment, Algal Scientific is focused almost exclusively on advancing the animal-health portion of its business, though within five years it expects to be producing beta glucan for humans, as well. The company recently moved to a new headquarters with room for its fermentation tanks, after being a tenant at the Michigan Life Science and Innovation Center, an incubator in Plymouth, MI, run by the Michigan Economic Development Corporation (MEDC).

Horst says the company’s long-term goal is to be acquired by a bigger company in the animal-health industry. In addition to the investment announced last week, Algal Scientific also counts the First Step Fund, the Michigan Pre-Seed Capital Fund, and the MEDC Follow-On Fund as investors.

“We’ve been very fortunate to be supported by state entrepreneurial programs—we’re grateful,” Horst says. “We’re very happy to be growing our company in Michigan.”

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