Boom in bio-based materials and chemicals finance nears end after $3.1 Billion in venture funding

Big-ticket acquisitions and a dozen IPOs mark an inflection point for the industry, says Lux Research

Start-ups and investors need to re-tool their strategies to tap newer opportunities as multi-billion-dollar acquisitions and a wave of IPOs indicate an impending end to a boom in the nascent bio-based chemicals industry, which received $3.1 billion in venture funding over the past seven years, according to a research report.

Big-ticket acquisitions such as DuPont’s $6 billion buy of Danisco and a dozen IPOs or other exits indicate the field is rapidly maturing, according to the report by Lux Research titled, “Seeding Investment in the Next Crop of Bio-Based Materials and Chemicals.”  Start-ups that initially attracted funding with the pledge to attack strategic global problems like peak oil and global warming have narrowed their focus to more mundane issues such as greener consumer products and packaging; they have also solved scientific issues in areas like synthetic biology, and are now just locking in feedstock contracts and negotiating project financing.

“The industry no longer offers daredevil innovators grand challenges that attract risk capital and venture finance,” said Mark Bünger, a Lux Research Director and lead author of the report. “Its challenges today lie in day-to-day dilemmas of running a mature, mundane business, and the payoffs are more predictable,” he added. “That doesn’t mean the field is dead; on the contrary, it means it has survived its pre-commercial childhood and is now highly relevant to corporations, regulators, and consumers.”

Lux Research tracked 177 venture transactions worth $3.14 billion in 79 companies over the period from January 2004 to September 2011, and examined another 49 companies that found funding through non-venture sources. Among the major findings:

  • Venture investments in green materials have recovered from the recession. The average annual number of VC investments in BBMC has made a steady rise from 6 to more than 30; while annual VC dollars invested took a $170 million hit during the recession, they are rising overall, from $48.9 million in 2004 to a new peak of $806.3 million in 2010 (and are on pace to stay steady in 2011). This compares very favorably to the adjacent field of alternative fuels, which dropped 5%, and VC financing for smart grid, energy storage, and electric vehicles, which saw a 43% drop.
  • Bio-based has become the new “organic,” assuaging affluent guilt. As the field moves from labs into factories, bio-friendly products offer a significant opportunity. Targets include replacements for plastic bags, high-velocity disposable products, children’s toys, packaging and bottles, and other consumer applications.

 

  • Newer opportunities lie in artificial photosynthesis, novel molecules, and biomimetic structural materials. The fact that the current generation of BBMC is maturing doesn’t mean that there is no more discovery afoot in the space. Examples include artificial photosynthesis being developed by Gingko BioWorks and OPX; novel molecules from Reluceo and Evolva; and biomimetic, living materials and devices like spider silk, optogenetics, and lasing cells – all of which sound like science experiments, but are as realistic as today’s IPO heroes were in 2004.

“Seeding Investment in the Next Crop of Bio-Based Materials and Chemicals” is part of the Lux Research Bio-based Materials and Chemicals Intelligence service.

About Lux Research

Lux Research provides strategic advice and on‐going intelligence for emerging technologies. Leaders in business, finance and government rely on us to help them make informed strategic decisions. Through our unique research approach focused on primary research and our extensive global network, we deliver insight, connections and competitive advantage to our clients. Visit www.luxresearchinc.com for more information.

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